Though Gannett reported a “strong first quarter” last week, the media organization posted total revenue of $777.1 million, an 18.1% decrease year-over-year, and a net loss of $142.3 million, or $1.06 per diluted share, compared to a net loss of $80.2 million, or $0.61 per diluted share, in the first quarter of 2020. In spite of those dips and losses, Gannett is optimistic, because the company also saw 37% growth in paid digital-only subscriptions.

“The first quarter of 2021 was our best quarter to date for new digital-only subscriptions subsequent to the acquisition of Legacy Gannett, surpassing 1.2 million, and a very encouraging start to the year as a whole,” said Michael Reed, Gannett chairman and CEO. “Our core digital marketing solutions teams also had a fantastic quarter, setting new records in productivity.”

Reed also noted that the company fully refinanced its 11.5% term loan, and the company achieved $300 million in annualized synergies in the first quarter, beating its original goal of achieving that level of synergy by year end. On the May 7 earnings call, Reed said the company’s first quarter financial results were ahead of expectations.

“With the refinancing behind us, we are focused on a long-term, subscription-led digital growth strategy. With the first quarter momentum in both digital-only subscriptions and in our digital marketing solutions segment, we believe we are well positions to not only meaningfully grow adjusted EBITDA year over year, but also continue our evolution to a digitally focused content platform,” Reed said.

Focus on subscriptions

During the earnings call, Reed noted that Gannett had recently implemented new retention and loyalty programs and content expansion to better serve subscribers. The company’s print subscriber base is holding steady, though Gannett is not expecting print subscriptions to accelerate. The company has also been focusing on increasing the lifetime value of its print subscribers. The company has a goal of reaching 10 million paid digital subscribers over the next five years. Reed also noted on the earnings call that the company is in the process of rolling out paid subscriptions for USA Today, its flagship newspaper.

Quarterly highlights

Other highlights for the first quarter of 2021 include the following:

• Publishing segment revenue was $699.6 million, which comes from circulation revenue ($325.4 million), print advertising revenue ($193.2 million), digital advertising and marketing services ($121.1 million) and other revenue ($59.8 million).
• The balance of total revenue was from digital marketing solutions ($102.3 million), corporate and other ($3.0 million) and intersegment eliminations of $27.9 million.
• Advertising and marketing services generated $388.4 million in revenue, compared to $487.0 million in the first quarter of 2020.
• Digital-only subscriptions totaled 1.2 million at the end of the first quarter, representing 120,000 net new subscription additions for the quarter.
• Operating costs were $477.8 million, compared to $566.5 million in the same period last year.
• Total operating expenses were $769.1 million, compared to $978.5 million in the first quarter of 2020.
• The company reported capital expenditures of $7.6 million for the quarter, mostly from product development, technology investments and operating infrastructure.
• At the end of the quarter, Gannett had cash and cash equivalents of $163.5 million and total outstanding debt of $1.5 billion.
• The company has plans to sell $90 million to $115 million in non-core assets during the balance of the year to help reduce its debt.

According to USA Today, Gannett is also looking at a sports betting partnership and selling NFTs to diversify revenue streams.

“We are highly optimistic that our new business opportunities in the sports gaming and the NFT space will create additional significant value for shareholders over the years,” Reed said.

Gannett owns more than 250 daily publications, including USA Today, and several hundred weeklies.

Insider Take

Acquired by New Media Investment Group in 2019, the new Gannett organization is achieving its synergies by laying off staff and outsourcing certain functions overseas. The first layoffs started in December 2019, just weeks after the merger was complete. Gannett will continue to save money with similar operational decisions. At the same time, the company is focused on digital subscriptions and new revenue streams (e.g., EFTs, sports betting, USA Today subscriptions). Their business strategy feels a bit scattered, and their “public face” seems unrealistic (strong quarter?), but the merger with New Media Investment Group is likely putting a lot of pressure in Gannett to perform. Based on this quarter’s results, Gannett has a long way to go to turn things around.