Lee Enterprises Achieves 50% Digital Revenue in Fiscal Q3 2024

Lee Enterprises, the owner of numerous local news publications across the United States, announced its fiscal Q3 2024 financials. As part of this, it achieved a goal of digital revenue representing 50% of total revenue.

• Total Operating Revenue: $151 million, down 9% year-over-year
• Digital Revenue: $76 million, up 9% year-over-year

Similar to Gannett, which we reported on earlier today, Lee Enterprises is managing a rapidly declining print business while it continues to build up the digital business with the goal of reaching sustainability.

In the quarterly announcement, Kevin Mowbray, Lee’s President and Chief Executive Officer, said:

The revenue inflection point is important as it stabilizes our operating performance, making us less impacted by the print business going forward. Nearly two-thirds of our total company gross margin was derived from digital sources, positioning us close to our goal of being sustainable from our digital products only. This positions us well to be vibrant and growing in the medium and long-term with the rapid growth of our digital revenue streams.

A big part of this has been a concerted effort to grow digital subscribers. According to the report, digital-only subscription revenue grew 34% year-over-year, generating $20.7 million in the quarter. In the three quarters of Lee’s fiscal year, it has already generated $60.5 million in revenue, $200k less than the full year in fiscal 2023.

The problem is that growth has slowed down since the big spike in Q4 2023 where it finished the quarter at 721,000. Fast forward to the end of Q3 and it has only added another 27,000 subscribers. However, it projects finishing the year at 771,000. Unless it sees another big spike, there’s a decent chance that it misses this target.

We can see it attempting to boost the numbers with many of its publications running a $1 for 6 months offer. The full price is $14.99 after those six months, so it’ll be a big question if it can generate anywhere near that after the six-month trial is over. Nevertheless, to achieve its long-term goals, it is looking to grow to 1.2 million subscribers by FY 2028, with that generating $150 million in revenue. It’ll need a lot more growth and for those subscribers to graduate to more expensive plans. That assumes each subscriber will generate $125 in revenue, or $10.42 per month.

This subscription revenue is important for Lee because its advertising and marketing services revenue was flat year-over-year. And year to date, it’s down $2.1 million, or 1.45%. However, in its quarterly revenue composition document, Lee reported a 1.6% increase on same-store revenues due to businesses divested and the elimination of stand-alone print products, which is part of the company’s long-term debt reduction plans.

A big part of this business is the Amplified Digital Agency. This division does website development, brand creative, local advertising, and social media marketing for local businesses. In fiscal Q3 2024, it generated $26 million, which was up 12% year-over-year. We can see the growth of this division in the below chart.

Lee’s digital transformation strategy and quest for sustainability can be clearly articulated on this slide in the investor presentation. As it adds more digital subscribers—which it rightfully considers to be high margin—and grows the agency business, it expects margins to improve considerably. At the same time, its SG&A costs to come down.

The margin expectations are predicated on hitting $450 million in annual digital revenue in fiscal 2028. It’s projecting to finish the year at $310-$330 million in digital revenue.

To achieve this, it will need to grow its digital subscribers by approximately 2.8% every quarter. This may not seem like a lot, but for context, Lee hasn’t achieved that growth at all in the last four quarters.

• Q4 2023 – Q1 2024: 1.94% growth
• Q1 2024 – Q2 2024: 1.36% growth
• Q2 2024 – Q3 2024: 0.4% growth

The growth rate is slowing. If it can hit the 771,000 target it has set for itself, that would be 3.1% quarterly growth, which would get it back on track. But if this year is any indication, that seems highly unlikely.