Media company The New York Times Co (NYSE: NYT) is acquiring sports-news platform The Athletic, which boasts of more than 1 million subscribers, in an all-cash deal worth $550 million, as the tabloid with a rich history of 170 years is on a mission to add a lot of digital content to lure subscribers. Following the news, the shares of New York Times Co ended Friday’s trading at $42.47, down 10.69% or $5.11 from the prior close.
The takeover demonstrates the New York Times’ shift towards a fee-based structure and the growth of paying users outside its primary journalistic offerings. As the newspaper business suffers from significant drops in advertising and physical circulation, the firm has been boosting its digital services, including NYT Cooking, a digital cookbook, and Wirecutter, a product review site Wirecutter.
The New York-based media company had over 8 million paid memberships across a spectrum of online and print offerings at the end of the 3Q 2021, with a target of reaching 10 million paid memberships over the next three years.
Established in 2016, The Athletic, which had 1.20 million paid memberships at the end of December, encompasses over 200 clubs in the US and worldwide. Interestingly, The Athletic rose to prominence by luring popular sports journalists like Ken Rosenthal (senior baseball writer) and Shams Charania (NBA insider).
The firm has a controversial history. In 2017, Alex Mather, co-founder of The Athletic, had stated that he would make sure that all local news media ran into big losses by attracting their prominent reporters. Mather later sought an apology for his statement.
Two years ago, in a private funding event, the firm was valued at $500 million. Last year, the sports-focused magazine had recorded revenues of approximately $65 million in 2021 and operating losses of roughly $55 million. Notably, The Athletic also conducted discussions with the online news platform Axios. However, the talks failed due to multiple difficulties, including valuation and the person who will head the merged entity.
The takeover of The Athletic by the New York Times is expected to be completed by March end. Furthermore, the takeover is anticipated to boost the latter’s revenue growth but negatively affect operating earnings for roughly three years. Following the acquisition, The Athletic will function as a standalone entity. Also, the founders of The Athletic – Alex Mather and Adam Hansmann – will continue in their current roles after the completion of the takeover.
Meredith Kopit Levien, CEO of The New York Times, revealed that The Athletic would be initially marketed as a distinct product and slowly include it in a wider package. While Allen & Company acted as advisor for the New York Times, LionTree advised The Athletic.
“Tactically, we think this takeover will expedite our capacity to expand and strengthen subscriber ties,” Levien opined about the transaction. She further stated that “With the acquisition of The Athletic, we will be able to establish ourselves as a worldwide front runner in sports writing. We are currently pursuing a target that is far higher than 10 million memberships, and we think that The Athletic will allow us to broaden our potential market of prospective consumers.”
The CEO also acknowledged that there is some duplication in the subscription bases of the New York Times and The Athletic and that the firm would assist The Athletic in developing advertising income.
The takeover of The Athletic is expected to keep the stock range-bound with slight bearish bias in the short-term as the company had announced that the operating profit would decline for the next three years, despite an increase in revenue.
The historical price chart indicates that the stock of the New York Times has closed below its 50-day moving average. Furthermore, the MACD indicator has a negative reading. Therefore, we are anticipating the stock to remain in a downtrend in the short term.
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