While at Starbucks (NASDAQ:SBUX), Bill Moore helped to create the Frappuccino. His next move was the Internet; in 1999, he joined a startup called Allrecipes.com, an online recipe-sharing site. Six years later, it appears that Reader's Digest (NYSE:RDA) likes what's cooking there.
The magazine and book publisher decided to purchase AllRecipes.com this week for roughly $66 million. The site has an extensive database of more than 30,000 recipes, fostering a community for food enthusiasts to post recipes and reviews. AllRecipes.com has about 1.8 million registered users and gets about 6 million unique visitors per month, which translates into roughly 70 million page views.
For the most part, Reader's Digest has focused on old media: printed magazines, books, mailing lists, and promotions. Unfortunately, that's not where the growth is. In the fourth quarter, the company posted a $122.4 million loss, or $1.27 per share, compared with net income of $57.8 million, or $0.58 per share, in the year-ago period. During this time, revenues declined about 4% to $765.2 million.
A big part of the loss came from Reader's Digest's write-offs in its Books Are Fun division. Nonetheless, the company is still pushing its old-media agenda, despite that strategy's apparently declining returns. Among other projects, it's devoting significant resources to a new magazine with popular Food Network personality Rachael Ray.
The newly purchased Allrecipes.com will become the portal for Reader's Digest's food sites. It should also provide synergy with the company's Taste of Home magazine and other Reader's Digest's cooking magazines and cookbooks.
Reader's Digest expects Allrecipes.com to contribute about $4 million in EBITDA in the next 12 months (revenues come from advertising and content licensing). But the deal should have minimal impact on Reader's Digest and its $2.4 billion in annual revenues; earnings per share are actually expected to fall by a penny because of this transaction.
In this Fool's opinion, the AllRecipes.com buyout is Reader's Digest's measured -- even tepid -- attempt to move online. While there are certainly synergies between the site and the company's print publications, Reader's Digest's core business is mature, with little remaining long-term growth. If it wants to attract investors, the company needs to be much more aggressive. Otherwise, bolder old-media firms like Scripps (NYSE:SSP) will gladly take the lead.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
