Times Pays $410 Million for Internet Company
The New York Times gave a vote of confidence to the future of online advertising when it announced yesterday it purchased Internet consumer-information provider About Inc. for $410 million in cash from magazine publisher Primedia. The sale to the Times is a sharp reversal of strategy for Primedia, who purchased the once high-flying About in October 2000 for $690 million in stock. The purchase is the Times' largest since 1993, when it acquired its rival, the Boston Globe, for $1.1 billion.
About.com is not a traditional web search engine such as Yahoo! or Google that offer potentially thousands of pages to view in response to a query, but rather an information-oriented site that offers the visitor personally selected pages from 475 so-called "guides." For example, a search for roof-repair would lead to a list of Web pages that had been selected by a roof-repair specialist. While viewing these pages, the visitor simultaneously receives highly targeted advertisements from the likes of Home Depot. The company said it has information stored on about 50,000 topics and gets nearly 22 million unique visitors a month.
Calls to both the New York Times and Primedia were not returned. Primedia has been selling "non-core" assets for the past two years, a process that led to its sale of New York and Modern Bride magazines.
Times executives, in a conference call with analysts in January, made little secret of their willingness to explore purchases to jump-start what is now the third year of profit-growth stagnation. The Times' chief financial officer, Len Forman, said the Times paid more than 10 times About's 2004 revenue of $40 million, or 23 times its $17.8 million projected operating income this year. About's operating income was $13.67 million last year. The executives said that the purchase should add to earnings by 2007. By comparison, the Standard and Poor's 500 index is trading at a price/earnings multiple of just under 18 times next year's earnings, implying a net-income growth rate of about 10%.
The Times executives justified the aggressive price by noting that Web-based advertising on their news media group Web sites was up 38% last year and had a 36% compounded annual growth rate for the last two years. The purchase will make the Times "the 12th largest entity on the Internet," once About's 1 million monthly users are added on its 12 million, according to the Times' CEO and president, Janet Robinson.
The optimism of the Times executives is not misplaced if the most recent Internet Advertising Bureau figures are representative. For the third quarter last year, the IAB and PriceWaterhouseCoopers estimated that Internet advertising grew by $2.43 billion, the eighth-straight quarterly increase. Moreover, the third quarter represented a 35% increase over the comparable period in 2003.
