Lee Enterprises' Q3 2025 Earnings: Navigating Digital Transformation and AI-Driven Growth for Long-Term Value

Lee Enterprises (NASDAQ: LEE) has long been a bellwether for the newspaper industry's painful but necessary transition from print to digital. Its Q3 2025 earnings report, while reflecting a 6% year-over-year decline in total operating revenue to $141 million, underscores a critical inflection point in its digital transformation. Digital revenue now accounts for 55% of total revenue, up from 51% in Q1 2025, with digital subscriptions growing 16% year-over-year to $23 million. These figures suggest that Lee's strategic pivot is gaining traction, even as it grapples with the headwinds of a shrinking print market and a lingering cyber incident.

The AI-Driven Engine Behind Digital Growth

Lee's recent focus on artificial intelligence (AI) has become a cornerstone of its digital strategy. The launch of its AI-powered product suite—Smart Answer, Smart Team, and SmartSuite HQ—in Q2 2025 has directly contributed to measurable improvements in lead capture, customer engagement, and operational efficiency. For instance, digital subscription revenue surged 16% in Q3 2025, while average revenue per user rose 28%, driven by hyper-personalized content delivery and automation.

The company's partnership with Amazon Web Services (AWS) further amplifies its AI capabilities, enabling scalable cloud infrastructure and optimized content delivery. This collaboration is not just about cost savings but about future-proofing Lee's platform in a competitive digital media landscape. As Lee's CEO noted, “AI is no longer a supporting act—it's the main event in our transformation.”

Financial Resilience Amid Short-Term Challenges

Despite a $2 million net loss in Q3 2025, Lee's adjusted EBITDA improved to $15 million, a 1% year-over-year increase and a 92% jump from Q2 2025. This improvement reflects disciplined cost management, including $40 million in annualized cost reductions from manufacturing, distribution, and corporate services. The company's debt burden, while still significant ($455 million under its Berkshire Hathaway-backed credit agreement), has decreased by $121 million since 2020.

The cyber incident earlier in 2025 temporarily disrupted subscriber activation, but AI-driven automation has since mitigated its impact. Lee's ability to recover and exceed expectations in digital subscription growth—16% YoY in Q3—demonstrates the resilience of its digital infrastructure.

Long-Term Vision: Digital Sustainability and $450M Revenue Target

Lee's three-pillar strategy—expanding audience engagement, accelerating subscription growth, and boosting digital advertising—positions it to achieve $450 million in digital revenue by 2028. The company is already on track to reach “digital sustainability” by FY2026, where digital gross margins exceed SG&A costs. This milestone would mark a fundamental shift from a print-dependent business to a self-sustaining digital model.

AI initiatives like the AI Boost program, designed to enhance advertising automation and visibility across AI search channels, are expected to unlock new revenue streams. Early results show an 85% adoption rate for hyper-personalized content, a metric that could drive long-term user retention and advertising effectiveness.

Risks and Realities

Investors should remain cautious. Lee's debt load and the broader challenges of monetizing digital subscriptions in a fragmented media landscape pose risks. The company's Q3 2025 guidance for low-single-digit adjusted EBITDA growth, while positive, is modest compared to the explosive growth seen in its digital subscription segment. Additionally, the print business continues to decline, with no clear timeline for its complete phase-out.

However, Lee's strategic focus on AI and cost discipline creates a compelling case for long-term value. Its ability to leverage AI for both operational efficiency and customer engagement—while peers like Gannett and The New York Times lag in adoption—could provide a durable competitive edge.

Investment Thesis

For investors with a 3–5 year horizon, Lee Enterprises represents a high-conviction opportunity in the digital media sector. The company's AI-driven transformation, combined with its progress toward digital sustainability, suggests that short-term underperformance is a temporary hurdle rather than a structural flaw. Key catalysts include:
1. AI-driven advertising growth: The AI Boost program and AWS partnership could unlock new monetization avenues.
2. Debt reduction: Continued cash flow generation from digital operations will accelerate deleveraging.
3. Subscription momentum: A 33% three-year CAGR in digital subscriptions outpaces industry averages.

While Lee's stock remains volatile, its strategic clarity and execution on digital transformation make it a compelling bet for those willing to navigate near-term volatility. As the media industry shifts toward AI-first models, Lee's early mover advantage could prove invaluable.

In conclusion, Lee Enterprises' Q3 2025 results highlight a company in transition. By marrying AI innovation with disciplined cost management, it is laying the groundwork for a sustainable digital future. For investors who can look beyond the noise of short-term underperformance, the long-term potential is clear.