The Zacks Broadcast Radio and Television industry comprises companies offering entertainment, sports, non-fiction and musical content over television, radio and digital media platforms. These companies majorly derive revenues from the sale of advertising slots as well as from subscriptions.
Rapid proliferation of smartphones, improved Internet speed and penetration, and change in consumer viewing pattern have led to the emergence of streaming or over-the-top (OTT) services like Netflix (NFLX - Free Report) . This has in turn resulted in strong demand for content which is original, regional, short and suitable for small screens (smartphones and tablets).
Here are the industry’s four major themes:
- Increase in cord cutting has forced industry participants to offer alternative services like virtual multichannel video programming distributor services, sometimes called “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 hurt top-line growth.
- To adapt to the changes in the industry, companies like CBS Corporation (CBS - Free Report) and Discovery (DISCA - Free Report) are coming up with varied content for OTT services in addition to linear TV. Additionally, they are adding OTT services to their content portfolio. This is helping companies easily reach a global audience and expand their international user base. This, 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.
- 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 the companies, thereby allowing them to apply AI and ML techniques to create/procure targeted content. The move not only boosts user engagement but also lets industry participants raise prices of their services. With many services available globally, users are bound to choose services that deliver the best value. Apart from this, the industry is witnessing widespread consolidation to counter competition and provide quality services.
- Advertising is a major source of revenues for companies like Fox Corporation and SiriusXM in this industry. However, these companies are facing stiff competition from tech companies like Facebook (FB - Free Report) , Twitter (TWTR - Free Report) , Google, YouTube and Amazon for ad-dollars. This has been a major impediment for growth, which is expected to continue to marring prospects over the long haul.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Broadcast Radio and Television industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #184, which places it in the bottom 28% 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 positioning 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 toward this group’s earnings growth potential. Since Jun 30, 2019, the industry’s earnings estimates for the current year have moved 19.3% south.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P 500 & Sector
The Zacks Broadcast Radio and Television industry has underperformed the Zacks S&P 500 composite as well as its own sector in the past year.
The stocks in this industry have collectively lost 7% against the S&P 500’s rise of 11.1% and the Zacks Consumer Discretionary sector’s fall of 0.8%.
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 22.7X versus the S&P 500’s 10.89X and the sector’s 12.26X.
Over the past five years, the industry has traded as high as 33.04X and as low as 18.58X, recording a median of 25.38X, as the chart below shows.
EV/EBITDA Ratio (TTM)
Stocks to Watch
The industry participants are expected to benefit from their diversified customer offerings, increased content consumption and Internet penetration, and technological advancement.
None of the stocks in the Broadcast Radio and Television industry sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, Cincinnati, OH-based The E.W. Scripps Company (SSP - Free Report) carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for this media content provider’s current-year loss stayed at 8 cents over the past 30 days.
Price and Consensus: SSP
We also present a couple of stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.
New York-based CBS is a leading media content provider. The consensus mark for 2019 earnings has been flat at $5.48 over the past week.
Price and Consensus: CBS
Los Gatos, CA-based Netflix is a leading streaming service provider. The Zacks Consensus Estimate for its current-year earnings stayed put at $3.26 over the past seven days.
Price and Consensus: NFLX