5 reasons I love Gannett Stock in 2022
Gannet (NYSE: GCI), the country’s largest news publisher, saw strong growth in 2021, with stock up about 75% at year-end. The stock is still down from pre-covid levels, after hitting a pandemic low of $ 0.72 per share in 2020. After its big merger with New Media Investment Group, management reorganized the company to move more towards digital and diversify into newer, more interesting income streams. As I wrote before, I see Gannett as a turnaround piece. Here are five reasons I love Gannett heading to 2022.
1. Increase in the number of digital subscribers
Gannett owns big news brands like USA Today, Detroit Free Press, and Indy Star. It also owns hundreds of weekly and daily newspapers across the country. But the old newspaper industry fell out of favor, with print circulation and advertising revenue declining. The challenge has been how best to monetize Gannett’s online presence. In addition to the more traditional publishing revenues, the company has developed its digital marketing solutions segment, which includes search and display advertising, search optimization, social media, website development, marketing products. web presence, customer relationship management and software as a service. solutions. In the third quarter of 2021, digital revenue of $ 265 million was up almost 18% from the previous year period and represented around 33% of total revenue for the quarter.
Between September 2020 and September this year, Gannett’s paid digital subscribers increased by more than 46%, from 1.06 million to 1.54 million. Gannett has launched two subscription apps – USA Today Sports + and the USA Today crossword app – and is rolling out an all-digital subscription model for USA Today. Management’s goal is to reach 10 million digital subscribers over the next five years. It seems they have a long way to go before they reach this goal, but the business seems to be moving in the right direction.
Image source: Getty Images.
2. Debt reduction
One of the problems with Gannett is that the company incurred extraordinary debt when it merged with New Media Investment Group. At its closing in 2019, the company had total debt of nearly $ 1.8 billion, the bulk of which was from a term loan facility bearing interest at 11.5%. Over the past year, the company has taken advantage of the low interest rate environment to refinance much of this debt to a blended rate of 5.81%. Gannett has also repaid its debt, with its total outstanding currently around $ 1.4 billion. As a result of this achievement, management said during the company’s recent earnings announcement that it is now authorized to repurchase outstanding shares or junior debt up to $ 25 million per quarter. The authorized amount will likely increase as the total debt continues to fall.
3. New sources of income
Gannett is adding exciting new revenue streams which are expected to begin to emerge throughout 2022. Earlier this year, the company announced a partnership with Tipico, the leading provider of sports gambling in Germany. Tipico will pay Gannett $ 90 million over the next five years to become Gannett’s exclusive sports and internet gambling provider. Gannett will also receive a referral commission for each reader who signs up to Tipico through any of its sites, and the company will have the option of acquiring up to an almost 5% stake in Tipico, which could be a valuable investment across the board. Gannett CEO Michael Reed said in a podcast earlier this year that the Tipico deal could be worth hundreds of millions in revenue. Gannett also recently made a deal with TicketSmarter, so that readers can purchase tickets for various events directly through various publications on the USA Today Network. Content has been the key to the success of gambling companies like DraftKings, Fanduel, and Penn, so this could be a huge opportunity for Gannett to leverage content in a more modern way.
4. Useful legislation
Due to declining incomes and dwindling resources, many are concerned about the state of journalism in the United States, which has led lawmakers to come up with several bills that would greatly benefit Gannett. The first, which is part of President Joe Biden’s $ 1.7 trillion Build Back Better bill, is called the Local Journalism Sustainability Act. The bill would create a 50% tax credit for publishers on the salaries of local journalists up to $ 50,000 the year after passage and 30% for the next four years. The bill would also provide tax credits to U.S. individuals for subscribing to local newspapers or making donations to local nonprofit publishers. Finally, the law would provide tax credits for small businesses to advertise to local media. The Build Back Better bill is currently on hold, so it may well not be passed. But Reed said on Gannett’s latest earnings call that passing the bill would mean $ 30 million to $ 35 million in employment tax credits for the company on a gross basis. The other bill currently under consideration in Congress is the Journalism Competition and Preservation Act, which would essentially give publishers more opportunities to negotiate with and potentially get more compensation from sites that make money from their content like Google and Meta-platforms.
5. Cheap trade
Looking at the first nine months of 2021 versus the first nine months of 2020, Gannett has significantly reduced his loss from nearly $ 550 million to $ 112.5 million. All of this loss and more, of approximately $ 142 million, is attributable to one-time charges in the first quarter for a derivative associated with convertible notes and debt refinancing. Otherwise, Gannett would have been profitable in the first three quarters of 2021.
Gannett trades incredibly inexpensively on a price-to-sell basis. It has grossed $ 3.2 billion in the past 12 months and has a market cap of $ 786 million, which means it is currently trading at around 0.25 times current income. . Revenues are likely to continue to accelerate with the new streams mentioned above. According to YCharts, Gannett’s enterprise value, which includes debt, is approximately 4.3 times its forward earnings before interest, taxes, depreciation and amortization (EBITDA). But YCharts uses a forward EBITDA of $ 453 million. At the end of the third quarter of this year, Gannett’s last 12-month adjusted EBITDA was $ 467 million. Assuming income increases from new sources of income and debt continues to be paid off, that multiple will go down further, which really makes Gannett look cheap right now.
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Randi Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Fool. Bram Berkowitz owns Gannett. The Motley Fool owns and recommends Meta Platforms, Inc. The Motley Fool has a disclosure policy.
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