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The Zacks Broadcast Radio and Television industry has been suffering from increased cord-cutting amid a spurt in demand for streaming content. However, industry participants like Netflix, Roku and Nexstar Media are 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 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 and subscriptions.
Notably, these industry players are increasing their spending on research and development, as well as sales and marketing, 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 these 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.
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.
Uncertain Macro-Economic Scenario Hurts Production and Ad Demand: Advertising is a major revenue source for the Broadcast Radio and Television industry. Industry participants are bearing the brunt of persistently high inflation, rising interest rates, raised capital costs, a soaring U.S. dollar and an anticipated recession, which encouraged advertisers to trim ad budgets and are expected to impact their top-line growth in the near term. Moreover, industry players are facing stiff competition from tech and social media companies for ad dollars. This has been a major impediment to 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 changing consumer viewing dynamics, as growth in Internet penetration, and advancements in mobile, video and wireless technologies have boosted small-screen viewing.
These 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 #196, which places it in the bottom 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is 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 outperform the bottom 50% by a factor of more than two to one.
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 Jun 30, 2022, the industry’s earnings estimates for 2023 have moved down 65%.
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 these stocks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
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 35% over this period compared with the S&P 500’s return of 13.3% and the broader sector’s increase of 6.3%.
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 8.22X versus the S&P 500’s 13.15X and the sector’s 8.46X.
Over the past five years, the industry has traded as high as 42.47X and as low as 7.21X, recording a median of 29.74X.
3 Broadcast Radio and Television Stocks to Consider
Two-thirds of Nexstar’s core advertising revenues comprise more resilient local advertising, which bodes well for the company. Moreover, Nexstar’s expanding partner base, which includes the likes of YouTube TV and Hulu, is positive.
The Zacks Consensus Estimate for the 2023 bottom line has increased 13.6% to $13.15 per share over the past 30 days. NXST shares have lost 6% year to date.
Roku: This Zacks Rank #2 (Buy) company is benefiting from increased user engagement on The Roku Channel, driven by continued popularity of the Roku TV program. Roku TV gained market share and the company extended leadership in the United States, Canada and Mexico.
The Roku Channel was among the top five channels by both active account reach and streaming hour engagement on the Roku platform in the United States. 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.
The Zacks Consensus Estimate for Roku’s fiscal 2023 loss has been steady at a loss of $5.23 per share over the past 30 days. The stock has gained 54.6% year to date.
Netflix: This Zacks Rank #3 (Hold) company is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized, foreign-language content.
Netflix shares have jumped 41.1% year to date. Notably, the Zacks Consensus Estimate for its 2023 earnings has moved up by a cent to $11.22 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 Netflix, Roku and Nexstar Media
For Immediate Release
Chicago, IL – June 28, 2023 – Today, Zacks Equity Research discusses Netflix (NFLX - Free Report) , Roku (ROKU - Free Report) and Nexstar Media (NXST - Free Report) .
Industry: Broadcast Radio & TV
Link: https://www.zacks.com/commentary/2113680/3-broadcast-radio-tv-stocks-to-watch-in-a-challenging-industry
The Zacks Broadcast Radio and Television industry has been suffering from increased cord-cutting amid a spurt in demand for streaming content. However, industry participants like Netflix, Roku and Nexstar Media are 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 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 and subscriptions.
Notably, these industry players are increasing their spending on research and development, as well as sales and marketing, 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 these 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.
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.
Uncertain Macro-Economic Scenario Hurts Production and Ad Demand: Advertising is a major revenue source for the Broadcast Radio and Television industry. Industry participants are bearing the brunt of persistently high inflation, rising interest rates, raised capital costs, a soaring U.S. dollar and an anticipated recession, which encouraged advertisers to trim ad budgets and are expected to impact their top-line growth in the near term. Moreover, industry players are facing stiff competition from tech and social media companies for ad dollars. This has been a major impediment to 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 changing consumer viewing dynamics, as growth in Internet penetration, and advancements in mobile, video and wireless technologies have boosted small-screen viewing.
These 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 #196, which places it in the bottom 22% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is 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 outperform the bottom 50% by a factor of more than two to one.
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 Jun 30, 2022, the industry’s earnings estimates for 2023 have moved down 65%.
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 these stocks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
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 35% over this period compared with the S&P 500’s return of 13.3% and the broader sector’s increase of 6.3%.
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 8.22X versus the S&P 500’s 13.15X and the sector’s 8.46X.
Over the past five years, the industry has traded as high as 42.47X and as low as 7.21X, recording a median of 29.74X.
3 Broadcast Radio and Television Stocks to Consider
Nexstar: This Zacks Rank #1 (Strong Buy) company is benefiting from growing contractual and recurring high-margin distribution revenues. You can see the complete list of today’s Zacks #1 Rank stocks here.
Two-thirds of Nexstar’s core advertising revenues comprise more resilient local advertising, which bodes well for the company. Moreover, Nexstar’s expanding partner base, which includes the likes of YouTube TV and Hulu, is positive.
The Zacks Consensus Estimate for the 2023 bottom line has increased 13.6% to $13.15 per share over the past 30 days. NXST shares have lost 6% year to date.
Roku: This Zacks Rank #2 (Buy) company is benefiting from increased user engagement on The Roku Channel, driven by continued popularity of the Roku TV program. Roku TV gained market share and the company extended leadership in the United States, Canada and Mexico.
The Roku Channel was among the top five channels by both active account reach and streaming hour engagement on the Roku platform in the United States. 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.
The Zacks Consensus Estimate for Roku’s fiscal 2023 loss has been steady at a loss of $5.23 per share over the past 30 days. The stock has gained 54.6% year to date.
Netflix: This Zacks Rank #3 (Hold) company is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized, foreign-language content.
Netflix shares have jumped 41.1% year to date. Notably, the Zacks Consensus Estimate for its 2023 earnings has moved up by a cent to $11.22 per share over the past 30 days.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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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.
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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.