Last week, we wrote that advertisers were worried about two things: 1) A second wave of COVID and 2) Back to School – and perhaps those two are related as schools appear likely to start the year with relaxed dress codes. Back to COVID – with some markets seeing an increase in cases, advertisers appear to be re-thinking budgets and the market may be slowing somewhat. We continue to expect a saucer shaped recovery.
Search Coverage List, Models & Reports
Search Results1-10 out of 42
The market has been playing the cyclical long trade in the media sector for the past several weeks on the sequential improvement / re-opening theme, with incremental bullishness into last week’s industry conference. The sell-off in the group this past week on a positive outlook was symptomatic of a sell the news event. However, our thesis for 3Q remains unchanged – ~500-1,000bps of sequential improvement for national adv., with local more market specific, but potentially better (for non-sports nets) if the NFL, NCAAF, etc. end up getting cancelled. Advertisers remain nervous about two things: 1) A second wave of COVID, and 2) back to school spending.
Some small late-2Q money continues to get spent heading into 3Q. Also, scatter pricing is flat-to-up slightly for 3Q vs. the upfront in many cases, though volume remains subdued. Upfront conversations have picked up and CPMs still appear as though they will be up, though buyers continue to push for flat-to-down. Concerns of a second wave of COVID this fall means that advertisers would like more flexibility to cancel rather than defer. As we head into the summer, it won’t be long before we start talking about back-to-school spending, which at this point, is a big unknown. Our 3Q expectation of ~500-1,000 bps of seq. improvement for cable/TV nets remains unchanged.
While discussions seem to flip-flop every day between a broader re-opening of the economy vs. a “re-closing”, we’ve been asked which stocks are most exposed to economically sensitive industries. Overall, Local is most exposed, followed by Div. Entertainment (see p. 2 for a revenue breakdown). Within Local, all outdoor and radio names have virtually 100% exposure thru advertising, while SSP, GTN & NXST are most exposed in broadcast. In Diversified Entertainment, DIS, DISCA, FOXA and VIAC have significant exposure to either a re-opening or re-closing.
Last week we wrote that phones were ringing at the networks and that 3Q20 inquiries have picked up / budgets have been registered. We believe that trend has continued, with the last couple of weeks of June seeing an increase in demand as well. The takeaway is that 2Q may end slightly better than we expected a couple of weeks ago. That said, our 3Q expectation of ~500-1,000 bps of sequential improvement for cable/TV nets is unchanged. It also appears as though auto dollars are starting to surface for 3Q, though it is too soon to call the impact on the market.
With the NBA, NHL, and EPL poised for a return to finish the season (and PGA starting up soon), the market will increasingly look to companies with sports exposure. We expect some of the budgets that were earmarked for the Summer Olympics to be allocated to the upcoming games, with more clarity on the NFL and NCAAF in a couple of weeks. With ~40% of advertising from sports programming, we think FOX is best positioned to benefit.
Two weeks ago, we wrote that “3Q Options Shouldn’t be Trusted” and that so much money was deferred from 2Q to 3Q, cancellations would be abnormally high as a result. However, with cancellations wrapping up over the next week or so, they appear to be coming in even heavier than we expected – 8x to 10x more than normal 3Q levels. As expected, pharma/healthcare/tech/streaming have optioned far less than most categories, but virtually every vertical has been active on the options front. Our overall view on the 3Q ad market across national and local is unchanged.
With earnings season largely wrapped up, there were few surprises in 1Q. It was bad, but mostly in-line w/our expectations (outside of a major relief rally in some cases), but looking ahead, we would note the following; 1) when sports come back, there will be a lot of supply and the movie, beer/alcohol, & auto categories are heavy sports advertisers – we think they will lag the recovery and we’ll hear about the weakness once games start to air; 2) with lower demand, advertisers are demanding steep rate decreases, but settling for modest ones; 3) 3Q is way too early to call, but the 2nd derivative will be better & investors have been playing that theme in a group that has been beaten up. We continue to prefer FOXA, NXST, and VIAC.
Overall, the 1Q print was soft, with both the top and bottom-line missing us by 3% and 5%, respectively. The miss was mostly due to revenue, which came in lower in spot, network and sponsorships. The one bright spot, however, was in digital, which surprised to the upside on another strong performance from podcasting and led us to raise our assumptions for the segment. Following these changes, our F’20 EBITDA actually goes up to $707MM (vs. our prior $682MM). We continue to like IHRT’s unique portfolio of assets and management team, but need advertising trends to stabilize before we get more constructive on the name. We maintain Peer Perform.
With the beginning of May comes 3Q options season – it will likely drag on and will be hard to interpret. Recall, many advertisers shifted a portion of their 2Q budgets to 3Q. As a result, we expect; 1) several categories to look for extensions on options closer to 3Q, 2) 3Q will see much more exercising of options than usual, 3) scatter volumes will be light, and 4) as of now, it continues to look like 2Q will be the bottom in terms of Y/Y ad declines.
- 1 of 5
- next →