Yahoo Finance Zacks Industry Outlook Highlights Warner Bros. Discovery, Fox and fuboTV
For Immediate Release
Chicago, IL – April 6, 2023 – Today, Zacks Equity Research discusses Warner Bros. Discovery WBD, Fox Corp. FOXA and fuboTV FUBO.
Industry: Broadcast Media
Link: https://www.zacks.com/commentary/2074777/3-broadcast-radio-tv-stocks-to-watch-in-a-challenging-industry
The Zacks Broadcast Radio and Television industry has been suffering from increased cord-cutting despite a spurt in demand for streaming content. However, industry participants like Warner Bros. Discovery, Fox Corp. and fuboTV 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, in order 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 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, the 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.
The 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 #197, which places it in the bottom 22% 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 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 Apr 30, 2022, the industry’s earnings estimates for 2023 have moved down 33.3%.
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 such stocks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags Sector and S&P 500
The Zacks Broadcast Radio and Television industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Index over the past year.
The industry has declined 19.7% over this period compared with the S&P 500’s fall of 8.9% and the broader sector’s slip of 14.8%.
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 9.16X versus the S&P 500’s 12.58X and the sector’s 8.46X.
Over the past five years, the industry has traded as high as 41.92X and as low as 8.27X, recording a median of 29.74X.
3 Broadcast Radio and Television Stocks to Buy
Warner Bros. Discovery: This Zacks Rank #2 (Buy) company’s expanding direct-to-consumer offerings are driving top-line growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The increasing availability of its content across linear, digital over-the-top platforms like Hulu and Sling TV, is a major positive. Discovery+ is off to an impressive start. The availability of Discovery+ on LG Smart TVs in Canada is expected to aid the top line. A steady ad-spending environment, primarily in the international markets, and growing viewership despite incremental spending on marketing and content are expected to drive revenues in the near term.
Markedly, the stock has jumped 59.8% year to date. Notably, the Zacks Consensus Estimate for its 2023 earnings has moved up by a cent to $1.41 per share over the past 30 days.
fuboTV: This Zacks Rank #2 company’s strengthening sports streaming offerings are expected to continue driving the top line in the near term. Last month, the company announced that it is rebranding its consumer-facing products as Fubo. Kicking off the rebrand is the launch of the company’s newest brand ad campaign. The nationwide campaign stars 15-time NBA All-Star, NBA Champion and Hall of Famer Kevin Garnett and veteran NFL quarterback Mark Sanchez, and is co-produced by Ryan Reynolds’ Maximum Effort Productions.
Fubo Sports Network has added MLB.TV to its lineup of live baseball coverage besides current carriage of MLB Network, MLB Strike Zone, regional sports networks, local broadcast networks and national sports networks ESPN and FS1. This is expected to draw both audience and sponsors for the network. Fubo was the fastest-growing virtual multichannel video programming distributor in the fourth quarter 2022, achieving 251,000 net subscriber additions compared to a total of 371,000 additions among all reporting companies in the space.
The Zacks Consensus Estimate for 2023 bottom line has narrowed from a loss of $1.69 per share to a loss of $1.46 per share over the past 30 days. FUBO’s shares have lost 35% year to date.
Fox: The company is riding on the growing demand for live programming. The robust adoption of Fox News and Fox Business Network is expected to drive the user base in the near term. This Zacks Rank #3 (Hold) company generates a major portion of advertising revenues from live programming, which is relatively immune to the rapidly intensifying competition from subscription-based video-on-demand services.
Moreover, recovering ad spending in the local advertising market is a major positive for Fox. Also, increasing affiliate-fee revenues are expected to drive Fox’s top line.
The Zacks Consensus Estimate for Fox’s fiscal 2023 earnings has declined 0.9% to $3.46 per share over the past 30 days. The stock is up 1% year to date.
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Warner Bros. Discovery, Inc. (WBD) : Free Stock Analysis Report
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