Source: www.insideradio.com, January 2023
“Digital is bolstering performance” – that’s the prognosis for radio from Noble Capital Markets. Taking stock of radio’s publicly traded companies based on their third quarter 2022 revenue performance and fourth quarter pacings, Noble’s Media Equity Research Analyst Michael Kupinski identifies the common thread among the radio companies that grew the fastest as their diversified revenue streams.
He singles out Urban One and Townsquare Media, which topped their peers with Q3 revenue growth of 9% and 8%, respectively. Salem Media and Beasley Broadcast Group, meanwhile, “grew less quickly but are taking steps to further diversify revenue,” the report says. Salem has diversified into content creation beyond radio, via publishing, movies and digital media while Beasley is among the radio companies pursuing a digital agency model.
Noble Capital calculates radio’s median Q3 revenue growth rate at 1.5%. While the average revenue growth was -1.0%, it was skewed by a poor performance from Medico Holdings, owner of hip-hop “Hot 97” WQHT and urban AC WBLS New York (107.5). The under-performance had a lot to do with timing. In previous years, “Summer Jam,” the annual stadium concert put on by “Hot 97,” took place during the third quarter. But in 2022 the cash cow concert fell in the second quarter. Without concert revenue and COVID-19 vaccine advertising campaigns, Mediaco revenue declined 34% year-over-year in Q3.
The broadcast radio section of Noble Capital Markets Media Sector Review – Q4 2022 also mentions Cumulus Media, noting that Moody’s downgraded the company’s Corporate Family Rating to B3 from B2 in early 2023, saying it believes Cumulus will face a further decline in advertising demand as the economy weakens. However, Moody’s could upgrade its rating if Cumulus lowers its leverage to 5-times as a result of a positive performance. Conversely, Moody’s could downgrade the rating if Cumulus’ leverage ratio increases to 7-times due to a poor performance. Kupinski points out that Cumulus is sitting on $118 million in cash and could tap into an additional $100 million through an asset-backed loan. And Cumulus notwithstanding, there are several radio companies with improving leverage profiles, the report notes.
‘Upside Prospects’ In 2023
Noble Capital makes a case that radio companies that are diversifying traditional revenue streams with digital dollars – and that have “achieved a greater degree of digital transformation” – are better shielded from a potential recession. “For those companies with substantial digital media businesses that are growing rapidly, like Townsquare Media and Beasley, we believe that advertising pacings in the first quarter are likely to be positive,” Kupinksi says in the report. Those pacings range from flat to plus 3% on the low end, to up 8% or more on the high end. “In our view, advertising for these companies do not appear to be falling off of a cliff as the stocks seem to project,” the report says. “Therefore, we believe that the radio sector appears to be in an oversold position and should have some upside prospects in 2023.”
That would be welcome news to an industry where stocks tumbled 15% in the fourth quarter and 64% for full year 2022, versus 19% for the general market, as measured by the S&P 500. That gave radio the dubious distinction of being the worst performing index in Noble’s traditional media segment. But it wasn’t alone. Television and publishing stocks were down 23% and 25%, respectively, and 2022 was “one of the worst for media stock performance in recent memory, with stocks across traditional and digital media sectors down over 40% or more,” per the report.
However, Kupinski sees “recent signs of life” and believes 2023 will be better. The S&P 500 increased by 7% during Q4 2022, he notes, marking the first time the Index had increased since fourth quarter 2021.
“Many media stocks seem to anticipate an economic downturn, but current fundamentals do not appear to be in a freefall and may be better than expected,” the Noble Capital report says. “If the economy further deteriorates from the recent or future [interest] rate hikes, it appears now that it may adversely affect the second half of 2023. Advertising pacings appear to be holding up well so far in the first half 2023. Notably, media stocks may begin to anticipate an improving economic outlook and overlook the weak fundamental environment in the second half.”
Read the complete report HERE.
