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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, Discovery and Entravision Communications 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%.
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.
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.
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 the 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.
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.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Fox Corporation, Discovery and Entravision Communications
For Immediate Release
Chicago, IL – March 1, 2022 – Today, Zacks Equity Research discusses Fox Corporation (FOXA - Free Report) , Discovery and Entravision Communications (EVC - Free Report) .
Industry: Broadcast - Radio and TV
Link: https://www.zacks.com/commentary/1874484/3-broadcast-radio-tv-stocks-to-watch-in-a-challenging-industry
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, Discovery and Entravision Communications 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%.
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.
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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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.
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 the 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.
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.
Just Released: Zacks Top 10 Stocks for 2022
In addition to the investment ideas discussed above, would you like to know about our 10 top buy-and-hold tickers for the entirety of 2022?
Last year's 2021Zacks Top 10 Stocks portfolio returned gains as high as +147.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys
Access Zacks Top 10 Stocks for 2022 today >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.