Gannett (GCI 4.00%), the largest news publisher in the country, had a nice run in 2021, with its stock up about 75% at year's end. The stock is still down from pre-covid levels, though, after hitting a pandemic low of $0.72 per share in 2020. After its big merger with New Media Investment Group, management has been revamping the business to get more digitally oriented and diversify into newer, more exciting streams of revenue. As I've written before, I see Gannett as a turnaround play. Here are five reasons I like Gannett heading in 2022.

1. Growing digital subscribers

Gannett owns large 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 business has fallen out of favor, with print circulation declining along with ad revenue. The challenge has been how to best monetize Gannett's online presence. Aside from more traditional publishing revenue, the company has been building its digital marketing solutions segment, which includes search and display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions. In the third quarter of 2021, digital revenues of $265 million were up nearly 18% from the prior-year period and made up roughly 33% of total revenue in the quarter.  

Between September of 2020 and September of this year, Gannett's paid digital subscribers grew 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 a fully digital subscription model for USA Today. Management's goal is to reach 10 million digital subscribers over the next five years. It seems like they have a long way to go before reaching this goal, but the business seems to be moving in the right direction.

A person holding a smartphone with news app on it.

Image source: Getty Images.

2. Decreasing debt

One of the issues with Gannett is that the company took on an extraordinary amount of debt when it did its merger with New Media Investment Group. Upon closing in 2019, the company had a total debt of nearly $1.8 billion, most of which came from a term loan facility charging 11.5% interest. Over the past year, the company has taken advantage of the low-rate environment to refinance a good chunk of this debt down to a blended rate of 5.81%. Gannett has also been paying down debt, with its total outstanding debt currently down to about $1.4 billion. Due to this achievement, management said on the company's recent earnings call that they are now permitted to repurchase stock or outstanding junior debt of up to $25 million per quarter. The allowable amount will likely increase as total debt continues to fall.

3. New revenue streams

Gannett is adding new exciting streams of revenue that should start to show up throughout 2022. Earlier this year, the company announced a partnership with Tipico, Germany's leading sports gambling provider. Tipico will pay Gannett $90 million over the next five years to become Gannett's exclusive sports and internet gambling provider. Gannett will also collect a referral fee for each reader that signs up for Tipico through one of its sites, and the company will have the option to acquire up to a nearly 5% stake in Tipico, which could be a valuable investment down the line. Gannett's CEO Michael Reed said on a podcast earlier this year that the deal with Tipico could be worth hundreds of millions in revenue. Gannett also recently struck a deal with TicketSmarter, so readers can purchase tickets to various events directly through various publications in the USA Today network. Content has been key for successful 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. Helpful legislation

Due to declining revenues and fewer resources, many are concerned about the state of journalism in the U.S., which has led lawmakers to propose several bills that would greatly benefit Gannett. The first is called the Local Journalism Sustainability Act. The bill would create a 50% tax credit for publishers on local journalist salaries of up to $50,000 in the year following passage and 30% for the four years to follow. The bill would also give tax credits to individual Americans for subscribing to local papers or donating to local non-profit publishers. Finally, the act would provide tax credits to small businesses to advertise with local news outlets. Part of this bill, the payroll tax credit portion, is also included in President Joe Biden's Build Back Better bill, which is currently up in the air. Reed said on Gannett's last earnings call that passage of the bill would mean $30 million to $35 million of employment tax credits for the company on a gross basis.  The other bill currently being considered in Congress is the Journalism Competition and Preservation Act, which would essentially give publishers more ability to negotiate with and potentially get more compensation from sites that make money from their content like Google and Meta Platforms.

5. Trading cheap

When looking at the first nine months of 2021 compared to the first nine months of 2020, Gannett has drastically lowered its loss from nearly $550 million to $112.5 million. This entire loss and more, roughly $142 million, is attributed to one-time charges in the first quarter for a derivative associated with convertible notes and to the refinancing of debt. Otherwise, Gannett would have been profitable through the first three quarters of 2021.

Gannett trades incredibly cheap on a price-to-sales basis. It has made $3.2 billion of revenue over the last 12 months and has a market cap of $786 million, meaning it currently trades at roughly 0.25x current revenue. Revenue will likely continue to accelerate with the new streams mentioned above. According to YCharts, Gannett's enterprise value, which incorporates debt, is about 4.3 times its forward earnings before interest, taxes, depreciation, and amortization basis (EBITDA). But YCharts is using forward EBITDA of $453 million. At the end of Q3 of this year, Gannett's adjusted trailing 12-month EBITDA was $467 million. Assuming that revenue climbs from the new revenue streams and debt continues to get paid down, this multiple is going to get even lower, which really makes Gannett look cheap right now.