Broadcast Radio and Television industry has been benefiting from coronavirus-induced demand for streaming content amid an increasing rate of cord-cutting. Roku ( ROKU Quick Quote ROKU - Free Report) , Fox Corporation ( FOXA Quick Quote FOXA - Free Report) and Entravision Communications ( EVC Quick Quote 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 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 top-line growth 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 spend 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
: To adapt to the changes in the industry, companies like Fox, Shift in Consumer Preference a Key Catalyst ViacomCBS ( VIAC Quick Quote VIAC - Free Report) and Discovery ( DISCA Quick Quote DISCA - Free Report) 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 portfolio. ViacomCBS has launched its streaming service, Paramount+, in the United States. Paramount Television Studios has been producing content for leading streaming platforms like Amazon, Netflix, Apple TV+ and Hulu. 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. Recent resumption of live sports events after delay and cancellations over the past year is expected to boost advertiser 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 prices of their services at appropriate time without the fear of losing subscribers. Increased Digital Viewing Aids Content Demand : Industry participants are bearing the brunt of coronavirus-induced macroeconomic woes. The pandemic has bumped up unemployment, which is expected to increase cord-cutting. Moreover, slow production threatens to defer supply of new content. 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 companies like Facebook, Twitter, Google and Amazon for ad-dollars. This has been a major impediment to growth. Coronavirus Hurts Production and Ad Demand : 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. Moreover, coronavirus-led lockdowns and shelter-in-place guidelines that compelled more people to stay at home have significantly increased viewership and audience base. However, the low-priced skinny bundles are likely to dampen top-line growth. Low-Priced Skinny Bundles Hurt Revenues Zacks Industry Rank Indicates Bright Prospects
The Zacks Broadcast Radio and Television industry is housed within the broader Zacks
Consumer Discretionary sector. It carries a Zacks Industry Rank #60, which places it in the top 24% 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 solid 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic on this group’s earnings growth potential. Since Oct 31, 2020, the industry’s earnings estimate for 2021 has moved up 11.6%. Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture. Industry Beats Sector and S&P 500
The Zacks Broadcast Radio and Television industry has outperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Index over the past year.
The industry has gained 37.4% over this period compared with the S&P 500’s increase of 32.4% and the broader sector’s rally of 11.2%. 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 Buy
Roku: This Zacks Rank #1 (Strong Buy) company has been benefiting from increased ARPU and user engagement owing to the coronavirus-led social distancing norms. The Roku Channel is witnessing a surge in premium subscription signups, which is a major positive. The launch of third-party streaming channels, including Peacock, Disney+ and HBO Max, is aiding user growth. Moreover, streaming hours growth is likely to boost TV streaming advertising on Roku’s platform, driving advertising revenues in the near term. The company is benefiting from robust growth in advertising driven by monetized video ad impressions on the increasing popularity of The Roku Channel. Markedly, the stock has gained 3.8% year to date. Notably, the Zacks Consensus Estimate for its 2021 earnings has been revised upward by 2.3% over the past 30 days to $1.34 per share. Price and Consensus: ROKU
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 #2 (Buy) company generates a major portion of advertising revenues from live programming, which is relatively immune to the rapidly growing competition from subscription-based video-on-demand services. Moreover, recovering the local advertising market affected by the coronavirus outbreak is a major positive. Also, increasing affiliate-fee revenues are expected to drive the top line. The Zacks Consensus Estimate for the company’s fiscal 2022 earnings has stayed at $2.76 per share over the past 60 days. The stock has gained 47.8% 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 #2 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 has gained 178.2% year to date. The Zacks Consensus Estimate for its 2021 earnings has been unchanged at 41 cents per share over the past 30 days. Price and Consensus: EVC