The Zacks Broadcast Radio and Television industry has been suffering from an increasing rate of cord-cutting despite pandemic-induced demand for streaming content. Fox Corporation (FOXA – Free Report) , Discovery (DISCA – Free Report) , and Entravision Communications (EVC – Free Report) 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 strategic significance and are expected to aid these companies in driving the top line in the near term.
Industry Description
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 as well as subscriptions. Notably, these industry players are increasing their spending on research and development as well as sales & marketing in order to stay afloat in an era of technological advancements with increased demand for VR and Internet Radio among audiences. The industry is likely to remain focused on sustenance at current levels along with 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 Out For
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. Additionally, they are adding OTT services to their content portfolios. The availability of streaming services on a wide range of platforms is helping such services easily reach a global audience. It is also helping them to expand their international user base, which in turn, attracts advertisers to their platforms, thereby boosting ad revenues. Moreover, the use of services to help advertisers measure their ROI and enhance their use cases is expected to benefit advertisers and industry participants. Also, major leagues and events such as NFL, NHL, Olympics, European Games, EPL and elections attract significant ad dollars. The recent resumption of live sports events after delays and cancellations over the past year is expected to boost advertiser demand.
Increased Digital Viewing Aids Content Demand: Many industry participants who are either launching their own 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, thereby allowing them to apply AI and machine-learning techniques to create/procure targeted content. The move not only boosts user engagement but also lets industry participants raise the prices of their services at the appropriate time without the fear of losing subscribers.
Coronavirus Hurts Production and Ad Demand: Industry participants are bearing the brunt of coronavirus-induced macroeconomic woes. Advertising is a major source of revenues for this industry, which has been badly hit by the coronavirus. Recovering yet low ad demand and reduced spending are expected to hurt the top line 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 growth.
Low-Priced Skinny Bundles Hurt Revenues: Increase in 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 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, thereby increasing the need to produce more content. However, the low-priced skinny bundles are likely to dampen top-line growth.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Broadcast Radio and Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #211, which places it in the bottom 17% 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 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 Feb 28, 2021, the industry’s earnings estimate for 2022 has moved down 21%.
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 27.1% over this period versus the S&P 500’s increase of 12.4% and the broader sector’s decline of 25.5%.
One Year Price Performance
Industry’s Current Valuation
On the basis of the 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 32.22X versus the S&P 500’s 16.06X and the sector’s 13.24X.
Over the past five years, the industry has traded as high as 33.21X and as low as 18.18X, recording a median of 23.01X, as the chart below shows.
EV/EBITDA Ratio (TTM)
3 Broadcast Radio and Television Stocks to Watch
Discovery: This Zacks Rank #3 (Hold) company’s expanding direct-to-consumer offerings are driving its top-line growth.
Expanding sports coverage based on partnership with the likes of PGA TOUR, Tiger Woods and Olympics is a major growth driver for Discovery. Further, recovery in advertising sending, primarily in the international markets, is a major positive.
Markedly, the stock has gained 20% year to date. Notably, the Zacks Consensus Estimate for its 2022 earnings has been revised downward by a penny over the past 30 days to $3.03 per share.
Price and Consensus: DISCA
Fox: This New York-based company is riding on the growing demand for live programming. Robust adoption of Fox News and Fox Business Network (FBN) is expected to drive user base in the near term. This Zacks Rank #3 company generates a major portion of advertising revenues from live programming, which is relatively immune to the rapidly intensifying competition from subscription-based video-on-demand services.
Moreover, recovering ad-spending in the local advertising market affected by the coronavirus outbreak is a major positive for Fox. Also, increasing affiliate-fee revenues are expected to drive Fox’s top line.
The Zacks Consensus Estimate for Fox’s fiscal 2022 earnings has risen by a penny to $2.87 per share over the past 30 days. The stock is down 13.2% year to date.
Price and Consensus: FOXA
Santa Monica, CA-based Entravision Communications is a diversified media company, utilizing a combination of television, radio, outdoor and publishing operations to reach Hispanic consumers in the United States. This Zacks Rank #3 company provides Latino data and digital services to advertisers. Entravision’s increasing digital advertising solutions portfolio is a major growth driver.
The acquisition of Cisneros Interactive has significantly expanded Entravision’s digital offerings to customers, representing some of the strongest global audience and ad tech platforms.
Moreover, expansion into Mexico, Argentina and Colombia are expected to further boost advertiser base and aid top-line growth in the near term. The stock is down 5.7% year to date.
The Zacks Consensus Estimate for its 2022 earnings has been unchanged at 50 cents per share over the past 30 days.
Price and Consensus: EVC
