The ITV [ITV] share price has fallen almost 40% so far this year. Despite plans to expand into the streaming space and build its portfolio of media assets, the FTSE 100 stock has struggled to gather momentum ahead of its upcoming first-quarter earnings announcement on 11 May.
While the UK broadcaster didn’t issue guidance for Q1, its most recent financial results indicated a healthy balance sheet. Its full-year 2021 revenue was up almost 25% at £3.4bn and its pre-tax profits rose from £325m to £480m. EBITA climbed 42% to £813m, which the company attributed to a strong recovery of the advertising market and its own cost-cutting activities that slashed spending by £37m in 2021.
ITV’s streaming ambitions, centred around the launch of its new service ITVX, will make its stock price a must-watch over the next few months as it seeks to increase its position in an already crowded marketplace.
Streaming platforms fight for market share
ITVX, due to launch later this year, claims to be the UK’s “first integrated advertising- and subscription-funded” platform, offering catch-up shows, exclusive content aired months ahead of its linear TV debut, and thousands of boxsets. ITV has hinted that the service may ultimately replace ITV Hub.
However, the company’s long-term strategy remains unclear. It recently invested in boxset subscriber service BritBox UK, and was reported by the Telegraph in April to be considering a potential £1bn bid for Channel 4
The recent flurry of activity surrounding ITV comes as streaming channels suffer a slowdown in growth. Netflix [NFLX] notably shed 200,000 subscribers in the past year and expects a further two million subscribers to switch off by July. Meanwhile, Warner Bros Discovery [WBD] recently trumpeted the launch of its CNN+ streaming service, then two weeks later suspended its marketing spend on the venture.
On 21 April, the day after Netflix announced the drop in subscribers during Q1, ITV shares spiked 7%. However, the broader investment case is fuzzier, with investors giving the UK broadcaster’s plans a poor reception. News that ITV had bought out the BBC’s share in BritBox UK on 3 March sent ITV shares tumbling 37% in the following 24 hours. Aside from a brief and minor rally the following week, the price had slumped to a 52-week intraday low of 67.36p on 9 May.
Promising growth outlook
Given the company’s focus on expanding its portfolio of content, ITV is well positioned to continue the robust performance it saw in 2021.
ITV’s self-described “strong programming slate including the Euros, Love Island and The Masked Singer” helped it achieve the largest ad revenue growth in its history in 2021, up 24% to £1.96bn. Perhaps as pertinently, its streaming viewing hours were up 22% and its monthly active users climbed 19% to 9.6 million.
In addition, the company forecasts that the launch of ITVX – alongside existing services ITV Hub, ITV Hub+, BritBox and its ad-selling platform Planet V – will double its digital revenue to £750m by 2026. Our chief market analyst Michael Hewson estimates that advertising demand will rise 16% year-on-year in the first quarter.
Revenues are expected to improve this year from 2021’s £3.45bn to £3.56bn, according to consensus estimates from 16 analysts polled by Yahoo Finance. The company will also bid to compete with its streaming rivals on content by increasing its investment in programming from £1.23bn in 2022 to £1.35bn next year.
“Last year’s financial performance, together with the successful completion of the first phase of our ‘More Than TV’ strategy, sets ITV up for digital acceleration,” Carolyn McCall, CEO of ITV, said as she revealed the results in March. “Our strong balance sheet and cash flows enable us to invest behind our strategy to build a more valuable digital media and entertainment company and deliver returns to shareholders.”
Analysts voice optimism despite concerns
Some analysts have raised concerns over whether the company’s strategy to snap up content will put it in a competitive position. “ITVX is not as revolutionary as the company might like you to believe,” Russ Mould, investment director at AJ Bell, wrote in a note. “Ultimately the proposition will only be as successful as its content, and here’s where ITV might have to dig deep to compete against the ever-growing number of rival streaming platforms. Yes, it has some classics, but will the lure of endless Carry On films be enough to get people to keep watching ITVX?”
However, looking at consensus ratings on the stock, analysts are reasonably optimistic about ITV’s short-term future. The stock has five ‘hold’ ratings and three ‘buy’ ratings, according to MarketBeat data. The consensus price target is 115.33p, implying an upside of 66.2% from its 6 May closing price of 69.40p.
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