The Zacks Broadcast Radio and Television industry has been suffering from increased cord-cutting despite a spurt in demand for streaming content. Nexstar Media Group NXST, fuboTV FUBO and Townsquare Media TSQ are industry participants benefiting from a huge spike in digital content consumption. Diversified content offerings, which are original, regional, short and suitable for small screens (smartphones and tablets); improved Internet speed and penetration; and technological advancement are benefiting the industry participants. As monetization and revenues, in terms of ad-spend, continue to be subdued, profit protection and cash management, with greater technology integration, have gained significance and are expected to aid these companies in driving the top line in the near term.
The Zacks Broadcast Radio and Television industry comprises companies offering entertainment, sports, news, non-fiction and musical content over television, radio and digital media platforms. These companies majorly derive revenues from the sale of television and radio programs, advertising slots and subscriptions. Notably, these industry players are increasing their spending on research and development, as well as sales and marketing, in order to stay afloat in an era of technological advancements, with increased demand for VR and Internet Radio. The industry is likely to be focused on sustenance at current levels, along with a renewed emphasis on flexibility, which would accelerate the move to a variable cost model and reduce fixed costs.
4 Broadcast Radio and Television Industry Trends to Watch
Shift in Consumer Preference a Key Catalyst: To adapt to the changes in the industry, companies are coming up with varied content for over-the-top (OTT) services in addition to linear TV. The availability of streaming services on a wide range of platforms is helping such services reach a global audience. It is also helping them expand their international user base, which, in turn, attracts advertisers to their platforms, boosting ad revenues. The use of services to help advertisers measure their ROI and enhance their use cases is expected to benefit advertisers and industry participants. Major leagues and events such as NFL, NHL, Olympics, European Games, EPL and elections attract significant ad revenues as well. The recent resumption of live sports events, after delays and cancellations over the past year, is expected to boost the demand for advertisers.
Increased Digital Viewing Aids Content Demand: Many industry participants, who are either launching their OTT services or acquiring other OTT services, are banking on user insights to deliver the right content. Increased digital viewing is making consumer data easily available to companies, allowing them to apply AI and machine-learning techniques to create/procure targeted content. The move not only boosts user engagement but also allows industry participants to raise the prices of their services at an appropriate time without the fear of losing subscribers.
Coronavirus Hurts Production and Ad Demand: Industry participants are bearing the brunt of the coronavirus-induced macroeconomic woes. Advertising is a major revenue source for Broadcast Radio and Television industry, which has been badly hit by the coronavirus pandemic. High inflation, rising interest rates, raised capital costs, a soaring U.S. dollar and an anticipated recession have encouraged advertisers to pull ad budgets and are expected to impact their top-line growth in the near term. Moreover, the industry players are facing stiff competition from tech and social media companies for ad dollars. This has been a major impediment to the industry participants’ growth.
Low-Priced Skinny Bundles Affect Revenues: Increased cord-cutting has forced industry participants to offer “skinny bundles.” These services, which are available through the Internet, often contain fewer channels than a traditional subscription and, therefore, are cheaper. The move is in line with the changing consumer viewing dynamics, as growth in Internet penetration, and advancements in mobile, video and wireless technologies have boosted small-screen viewing. The alternative services are expected to keep users glued to their platforms, increasing the need to produce additional content. However, the low-priced skinny bundles are likely to dampen top-line growth for the industry players.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Broadcast Radio and Television industry is housed within the broader Zacks Consumer Discretionary sector. It currently carries a Zacks Industry Rank #211, which places it in the bottom 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Jan 31, 2022, the industry’s earnings estimates for 2022 have moved down 24.1%.
Despite the gloomy industry outlook, a few stocks are worth watching, as these have the potential to outperform the market based on a strong earnings outlook. But before we present such stocks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags Sector and S&P 500
The Zacks Broadcast Radio and Television industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Index over the past year.
The industry has declined 42.8% over this period compared with the S&P 500’s fall of 18.5% and the broader sector’s slip of 29.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of trailing 12-month EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), which is a commonly used multiple for valuing Broadcast Radio and Television stocks, the industry is currently trading at 10.97X versus the S&P 500’s 11.83X and the sector’s 8.46X.
Over the past five years, the industry has traded as high as 41.92X and as low as 9.25X, recording a median of 30.23X, as the chart below shows.
EV/EBITDA Ratio (TTM)
3 Broadcast Radio and Television Stocks to Buy
Nexstar Media: The company recently acquired a majority stake in CW Networks from Paramount Global and Warner Bros. Discovery, enabling Nexstar Media to establish itself as a participant in advertising video-on-demand services via the CW app. Though CW has not been a profitable business, Nexstar Media believes that its investment and business strategies will help it improve its ratings and revenues, and make it reach profitability by 2025.
This Zacks Rank #1 (Strong Buy) company has been making progress on the rollout of ATSC 3.0, as it launched it in four additional markets in second-quarter fiscal 2022. It is also accelerating discussions behind the scenes with potential technology and business partners for the same service.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for 2022 earnings has been unchanged at $26.95 per share over the past 30 days. NXST’s shares have gained 8.9% in the past year.
Price and Consensus: NXST
fuboTV: This Zacks Rank #2 (Buy) company’s strengthening sports streaming offerings are expected to continue driving the top line in the near term. Last month, it partnered with Sinclair Broadcast Group, which will allow it to launch Bally Sports’ 19 regional sports networks to fuboTV in the coming weeks. These include Bally Sports Arizona, Bally Sports Detroit, Bally Sports Florida, Bally Sports Great Lakes and Bally Sports Indiana.
Fubo Sports Network is set to exclusively air the 2023 PFL Challenger Series from Jan 27, which is an eight-night competition of American mixed martial arts promotion. This is expected to draw an audience and sponsors for the network. This is expected to boost Fubo’s ad revenues after it delivered $22.7 million in advertising revenues for third-quarter fiscal 2022, which marks a 22% year-over-year rise.
The Zacks Consensus Estimate for 2022 bottom line has been unchanged at a loss of $3 per share over the past 30 days. FUBO’s shares have lost 86.1% in the past year.
Price and Consensus: FUBO
Townsquare Media: This Zacks Rank #2 company specializes in creating and distributing original entertainment, music and lifestyle content. Its assets include radio stations, local companion websites, a streaming radio App called radioPup for iOS and Android, and live events.
The robust performance of Townsquare Interactive (“TSI”), the company’s digital marketing solutions subscription business, is expected to have been a key catalyst. TSI’s subscription revenues have grown nearly $10 million per year, on average, for six straight years, at a stable 30% margin since 2016.
The Zacks Consensus Estimate for 2022 earnings has been unchanged at $1.02 per share over the past 30 days. TSQ’s shares have declined 40.3% in the past year.
Price and Consensus: TSQ
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