Gannett’s Q1 earnings report boasts optimism, despite ad declines and stagnant subscriptions

Despite ending the first quarter about 9% down year over year in total operating revenues, Gannett’s leadership team entered the company’s Q1 earnings call on Thursday as optimistic as ever. 

“2023 is off to a great start,” boasted Gannett’s CEO Mike Reed, adding that adjusted EBITDA was down only 2% in Q1 2023 year over year — a substantial improvement to Q4 2022, which was down 22% year over year. “Entering Q2, we believe the most challenging comparisons to [the] prior year are behind us,” he continued. 

This optimism allowed Gannett to revise its full-year 2023 outlook for both adjusted EBITDA and free cash flow. Full-year adjusted EBITDA will be between $285 million and $305 million, representing year-over-year growth of more than 15%, according to CFO Doug Horne, up from the 10% to 15% range predicted in the company’s Q4 earnings call in March. “This growth is expected to be most significant in Q2 and Q3 of 2023,” Horne added. 

Full-year revenues for 2023 are still projected to be between $2.75 billion and $2.8 billion, however, representing a decrease of between 5.1% and 6.8% from 2022’s total full-year revenues, which were $2.95 billion. 

The successes of the first quarter are in part a result of Gannett’s “cost management initiatives” measures — i.e. layoffs, mandatory unpaid leave and hiring freezes — that took place at the end of 2022, Reed said. They are estimated to represent about $220 million worth of anticipated annualized savings this year. 

“We believe we are at an inflection point at the trajectory of our company,” Reed continued. And while 2023 still might not end up year over year from a total revenue perspective, he said his team is still confident that they can achieve that goal by the end of 2024.

By the numbers: 

  • Gannett’s total operating revenues in Q1 2023 were $668.9 million, down 10.6% year over year. 
  • Digital-only paid subscriptions increased 15.4% year over year in Q1 2023, totaling 2.02 million subscriptions, but remained relatively unchanged from Q4 2022. 
  • Digital-only subscriber average revenue per user decreased by 0.5% year over year, but was consistent with Q4 2022. 
  • Digital-only circulation revenues reached $35.8 million, representing an increase of nearly 20% year over year.
  • Digital revenues in Q1 were $247.5 million, down 0.9% year over year. 
  • Digital revenues represented 37.5% of the company’s total revenue mix this quarter.
  • Gannett averaged 186 million unique visitors per month in Q1. 
  • The company had 6.5 million registered users by the end of Q1, up 63% year over year. 
  • There were 8.7 million newsletter subscribers, up 16% year over year.
  • The digital marketing solutions core platform revenues totaled $111.4 million in Q1 2023, up about 4% year over year. 

Digital advertising remains the culprit

Total digital revenues in Q1 were $247.5 million, down by only 0.9% year over year on a same store basis. Horne attributed total digital revenues being down to the “continued softness in digital advertising” and, looking specifically at that business line, there was a slightly different story to be told. This business totaled $66.1 million in Q1 2023 — down 16% year over year from $78.8 million in Q1 2022. 

He predicted that midway through Q2 2023 is when the tides will turn for digital advertising, and digital revenue will be on a growth trajectory. 

Digital subscriptions stay flat

Digital-only circulation revenues were up by 20% year over year from $30.1 million in Q1 2022  to $35.8 million in Q1 2023. That growth rate is expected to continue throughout the year, Reed said. This revenue stream represented only 5.4% of the company’s total Q1 revenue, however. 

Compared to the previous quarter, both revenue from digital-only subscriptions and the total paid digital-only subscriptions were essentially flat, if not a little bit down. In Q4 2022, total paid digital subscriptions were 2.03 million, which generated $35.5 million. By Q1 2023, the number of subscriptions dropped slightly to 2.02 million, but revenue increased by about $300,000. 

“This was in-line with our expectations as we anticipated lower net adds in the first quarter as we focused on product efficiency and refocusing our marketing and pricing strategies,” Reed said, adding that this trend is expected to continue into the second quarter. But by the second half of the year, the company is projecting an increase in subscription acquisition volumes. 

Similar to what was said last quarter, Gannett is hoping that its registration model will help drive more readers to convert to paid subscriber status. By the end of Q1, Gannett had 6.5 million registered users, up 63% year over year, as well as 8.7 million newsletter subscribers, up 16% year over year. 

Between the non-paid newsletter subscribers and registered users, Gannett has “13 million engaged consumers who are not yet subscribers who we are interacting with on a regular basis,” Reed said. This cohort already has a higher propensity of becoming subscribers and getting those users to make the jump and finally convert into paid subscribers is a significant part of the digital-only subscription growth strategy this year.

Growth from repeat business

Gannett’s Digital Marketing Solutions business was a notable growth area in Q1. 

The core platform revenues totaled $111.4 million in Q1 2023, up about 4% year over year. This business has both a paid tier of about 15,000 advertising customers as well as a freemium tier catered to small businesses. Reed said the freemium tier surpassed 100,000 registered users in Q1, almost doubling the 55,000 it had at the end of Q4 2022.

Reed said the DMS business model is similar to a software-as-a-service or a subscription model, given it maintains a 95% retention rate on customer revenue and free registered users are more likely to convert to paid.

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