The Athletic's Financial Performance: A Closer Look

Analyzing The Athletic's Financial Performance

Recent reports from The Information have highlighted the financial activities of The Athletic, a subscription-based sports media platform that has secured substantial investment. The coverage details significant expenditures alongside revenue generation.

While losses are commonplace in rapidly expanding, venture capital-funded businesses, the scale of financial outlay at a media company initially appeared noteworthy. However, a closer examination of the figures prompts a reassessment. It appears The Athletic may be performing adequately.

Financial Overview: 2019-2021

According to Jessica Toonkel’s reporting, The Athletic experienced a cash burn of $54 million in 2019, with revenues totaling $26 million. This substantial burn rate is understandable if the company was actively expanding its team and developing its platform to facilitate future revenue growth.

The results for 2020 demonstrated positive movement. Despite the disruption to sports caused by the pandemic, The Athletic generated $47 million in revenue and reduced its cash burn to $41 million.

Although profitability remained elusive, the improvement from a cash burn exceeding 200% of revenue to under 100% represents considerable progress. It’s important to note that early-stage software companies often exhibit similar financial patterns.

Projections for 2021 indicate a further reduction in cash burn to $35 million, alongside revenue growth to $77 million. This would mean the company’s cash burn accounts for less than half of its revenue, a significant improvement over previous years.

Future Projections and Valuation

Looking ahead to next year, The Athletic anticipates cash consumption of only $7 million against projected revenues of $119 million. This scenario suggests a near-cash-neutral position, coinciding with exceeding $100 million in revenue.

A company generating nine-figure recurring subscription revenue holds inherent value, even acknowledging potentially lower gross margins compared to typical software businesses. While a software-as-a-service (SaaS) valuation multiple may not be achievable, the projected financial performance appears promising.

Addressing Potential Concerns

The current data appears positive, but certain factors could alter this assessment. Potential concerns include exceptionally low gross margins, unobservable churn rates, declining average revenue per subscriber, or substantial cash outflows not reflected in standard cash flow analysis.

It was not anticipated that establishing a global sports website with a team of talented writers covering numerous sports would be inexpensive. This expectation was shared by The Athletic’s investors. The current level of concern seems unwarranted.

Ultimately, the available information suggests The Athletic is on a positive trajectory, effectively managing its resources and building a sustainable business model.