Gannett Reports Q2 2024 With Digital Revenue Up 6.2% YoY

Gannett, publisher of USA Today and numerous other local newspapers, announced its Q2 earnings on Thursday. It’s a story of rising digital revenue, dropping total revenue, and improved net income.

• Total Revenue: $639.8 million, down 4.8% compared to Q2 2023
• Digital Revenue: $278.4 million, up 6.2% compared to Q2 2023
• Net Income: $13.7 million, up from a $12.7 million loss in Q2 2023

Gannett is a business in transformation. Only 43.5% of its revenue comes from digital, but this is up considerably from 39% a year ago and 35% two years ago. This digital transformation is key for the business. Gannett is projecting to hit 50% of total revenue in 2025 and exceed 55% in 2026.

There are two major drivers of this digital revenue growth. The first is its ‘digital other’ category, which is only 4% of the company’s total revenue, but represented 20% year-over-year growth. This $24.3 million in revenue was supported by affiliate revenue doubling compared to this time last year.

Then there are its digital-only subscriptions, which accounted for 7% of the company’s total revenue and yet represented 22% year-over-year growth. We can see the growth of subscriptions in the chart below.

It’s impressive that Gannett has 2 million subscribers, but the growth is very slow. In Q2 2023, it had 1.95 million subscribers. And so, it’s only grown by 80,000 net subscribers in the year. This point is relevant when it comes to ARPU because the company’s ability to generate more revenue per user over time is necessary to achieve these long-term revenue goals. Kristin Roberts, Gannett’s Chief Content Officer, said on the earnings call:

It’s one thing to grow the audience, it’s another to hold that audience and then turn that audience into predictable and repeatable revenue across multiple revenue channels. An increasingly engaged audience really gives us the opportunity to take the next big step which is creating a multi-point monetization journey… the kind of journey that increases the amount of revenue captured per digital user on each digital visit. The useful construct—the one we’re using to think about this—is the sports reader. Think about a sports reader who finds a story on platform. That leads to programmatic revenue. That person is the presented with a second relevant and related piece of content. He or she interacts with that content. Say it’s from our partner gambling.com. That’s live partnership revenue. As that reader extends to a third asset, we might serve up a subscription offer, for example.

So what having this large audience does is that it allows us to narrow, slice, and present relevant experiences to specific audience groups. Think of it as segmented products for segmented audiences. That’s going to lead to increased engagement and that in turn allows us to take advantage of our diverse revenue streams and that will maximize monetization along the consumer journey.

The improved ARPU can be seen in the chart below.

It’s impressive to see this ARPU considering USA Today has an offer today where you can get a full year subscription for $5.00. On the other hand, an annual subscription to North Jersey, one of the publications in the USA Today local network, costs $45 for a year, or $0.25 for two months. And so, while Gannett doesn’t break out revenue by publication, it’s obvious that many of these 2 million subscribers are getting low-priced subscription offerings.

Whether this matters is up for debate. As we can see in the chart below, it had 185 million unique users per month on average in the quarter. And so, it’s only converted about 1% of its audience to a paying subscription. I suspect it’s not making more than $5 per year in advertising from any one of these unique users, so converting someone to a subscriber—even at a low price—is likely better than them remaining free.

Over the long-term, we need to see improved growth of the core digital subscription offering alongside improving ARPU numbers if Gannett is going to achieve its long-term ambitions of a more profitable digital-first media company.

Marketing Solutions is an intriguing part of the business. It assists local businesses with their search listings, SEO, websites, and various other services. This division was up only 1% compared to last year. And yet, there are some notable underlying trends. First, its average customer count dropped from 15,300 in Q2 2023 to 14,700 in Q2 2024 (up from 14,300 in Q1 2024). At the same time, ARPU of these customers grew from $2,642 to $2,777.

The important thing for Gannett to figure out is whether it can grow the number of customers while retaining that ARPU. There are customer support costs associated with supporting smaller customers, so if ARPU drops as it adds customers, we may see another flat year, but on the backend, operating income will be down because of that.

Debt is getting under control

One final note worth discussing in the case of Gannett is its debt. When Gannett was acquired in 2019, it had $1.76 billion in debt on the books. As of June 30, 2024, the total debt principal outstanding is approximately $1.09 billion with total net debt at $991 million.