AI Licensing Dependence And Margin Pressure Will Limit Long Term Earnings Potential

Catalysts

About USA TODAY

USA TODAY, part of Gannett, provides national and local news, sports and lifestyle content across digital platforms and print products.

What are the underlying business or industry changes driving this perspective?

• Dependence on AI licensing deals with partners such as Perplexity and Microsoft concentrates a growing share of digital revenue in a small group of counterparties. Any change in AI models, pricing or publisher policies could limit renewal economics and cap future digital revenue growth.
• AI answer agents that keep users on their own platforms instead of sending traffic to publisher sites reduce click through opportunities. This can pressure advertising impressions on USA TODAY properties and limit long term growth in digital ad revenue and earnings.
• The rapid shift of audiences toward video formats and vertical mobile experiences requires ongoing investment in content creation, technology and sales capabilities. These investments can keep operating costs elevated and constrain improvement in net margins even if engagement metrics remain healthy.
• Reliance on blocking tens of millions of unlicensed AI bots while selectively allowing a few licensed partners creates execution and enforcement risk. Any erosion in control over scraping could weaken bargaining power and dilute the revenue contribution from content licensing to AI platforms.
• Emphasis on newer products such as PLAY games, pets and other passion verticals adds complexity to the digital portfolio. If these products fail to attract a meaningful share of the existing audience, the incremental product and marketing spend may weigh on adjusted EBITDA margins and limit earnings growth.

Assumptions

This narrative explores a more pessimistic perspective on USA TODAY compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming USA TODAY's revenue will decrease by 4.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 4.1% today to 2.8% in 3 years time.
• The bearish analysts expect earnings to reach $57.6 million (and earnings per share of $0.26) by about January 2029, down from $96.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $131.1 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.8x on those 2029 earnings, up from 8.7x today. This future PE is lower than the current PE for the US Media industry at 14.8x.
• The bearish analysts expect the number of shares outstanding to decline by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.98%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Digital revenues already account for 47% of total company revenue and management expects this share to move toward and then above 50%, so if the long term mix shifts to higher margin digital products continues, that could support more resilient revenue and adjusted EBITDA.
• USA TODAY and the wider Gannett group are signing multiple AI content licensing agreements with partners such as Perplexity and Microsoft and management has indicated there is a growing pipeline of deals. If this develops into a recurring "library" style revenue stream, it could provide an additional cushion for revenue and earnings.
• The audience base is very large, with 187 million average monthly unique visitors and at least 1 billion domestic page views per month, and early data from new products like sports hubs, USA TODAY Pets and PLAY shows higher engagement. If this engagement translates into better monetization, it could support digital advertising revenue and net margins.
• Digital only subscription ARPU reached a record US$8.80 in Q3 2025 and management is focused on higher value subscribers rather than pure volume. If ARPU continues to trend higher and volumes stabilize, digital only subscription revenue and earnings could be stronger than a bearish view assumes.
• Net debt has fallen below US$1b, the company repaid US$116.4 million of debt in the first nine months of 2025 and is targeting more than US$135 million of repayments for the year. If debt and interest expense continue to reduce while the US$100 million cost program flows through, free cash flow and net margins could improve.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for USA TODAY is $4.0, which represents up to two standard deviations below the consensus price target of $6.22. This valuation is based on what can be assumed as the expectations of USA TODAY's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $2.1 billion, earnings will come to $57.6 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $5.84, the analyst price target of $4.0 is 46.0% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.