10. Gannett Co., Inc. (NYSE:GCI)
Number of Hedge Fund Holders: 28
Gannett Co. (NYSE:GCI) is a diversified media company that operates through the Newsquest, Domestic Gannett Media, and Digital Marketing Solutions (DMS) segments. The Domestic Gannett Media segment operates USA TODAY. The company operates the Newsquest segment in the UK, which comprises more than 220 digital news and media brands across its portfolio. This includes over 150 weekly and daily newspapers and over 70 magazines. Gannett Co. (NYSE:GCI) also offers digital advertising and marketing solutions.
The company’s digital revenue categories saw strong growth in fiscal Q3 2024. As a result, its total digital revenues surpassed 45% of total revenues, marking an all-time high for the company. It also generated around $20 million of free cash flow, showing a 168% increase compared to 2023.
Gannett Co.’s (NYSE:GCI) audience also experienced growth in fiscal Q3 2024, surpassing 200 million average monthly unique visitors for the first time in the company’s history. This reflects a 7% growth compared to 2023. The primary drivers of audience growth for the company in fiscal Q3 2024 included political events, the kickoff to football season, and the Paris Olympics.
The company’s digital-only subscription business is also bringing new highs. Its revenue surpassed $50 million in fiscal Q3 2024, and the average digital-only revenue per unit (ARPU) exceeded $8. Investors are bullish on the stock as this segment suggests considerable upside for the company through both pricing and volume growth. Fiscal Q3 2024 marked the company’s second consecutive quarter of year-over-year subscription growth, along with another quarter of sequential growth in digital-only paid subscriptions.
Miller Deep Value Select Strategy stated the following regarding Gannett Co., Inc. (NYSE:GCI) in its Q3 2024 investor letter:
“During the quarter, our two largest positive contributors were Gannett Co., Inc. (NYSE:GCI), whose market share price up 20% and United Natural Foods (UNFI), with a market share price up 31%. Gannett continues to make progress with their long-term transformation to a digital media company. Management expects digital revenues to become more than 50% of company sales over the coming year which would support the company’s return to annual revenue growth. In September, the DOJ presented a very strong case against Google for their Ad Tech business. Gannett’s anti-trust case against Google is very similar to the DOJ case, and we believe it remains overlooked by the marketplace. Gannett is being represented by Kellogg Hansen who won the two largest anti-trust verdicts ($1.2B and $1.3B) and were also successful in defending the appeals of those verdicts. While it is impossible to know with certainty the outcome of Gannet’s legal case, we find it interesting that Kellogg Hansen’s only compensation is tied to Gannett having success in winning their case. This is an important indication of alignment to us. In a scenario where Gannett wins a verdict in the neighborhood of the amount they are seeking, it may mean a windfall greater than all the net debt on the balance sheet. Assuming, as we do, that the current share price has not priced in such a development, the result would be a share price below two times normalized Enterprise Value to EBITDA (EV/EBITDA). Compared with The New York Times, which currently trades at greater than nineteen times EV/EBITDA, a valuation at half of that multiple on normalized EBITDA would support an equity market cap more than $4B for Gannett. While there are risks of temporary setbacks with multi-year transformations, the current market valuation framework appears to remain focused on the company’s historical secular growth challenges. The biggest near-term risk would be unexpected weaker trends in print advertising, creating greater near-term secular revenue headwinds. A successful transformation, positive anti-trust case verdict, and potential non-core asset sale could lead to significant upside over time. We believe the shares remain significantly mispriced at only .3 times revenue and greater than 40% normalized free cash low yield.”
