Stock Watch

Has the ITV share price lost its X factor?

CMC Markets

It’s been a dramatic year for ITV, with an unprecedented drop in advertising revenues leading to a removal from the FTSE 100 index. This has taken a drastic toll on the ITV share price, wiping 60% of the broadcaster’s market value year-to-date.

ITV share price suffers alongside revenues

When ITV reported its H1 numbers in August, total advertising revenue for the period dropped 21% to £671m. Broadcast revenue also fell 17% to £824m. The ITV share price dropped too; the stock sat as low as 57p as recently as August, but has recovered to 89p in November, still well down on the 150p price of January 2020.

Chief executive Carolyn McCall called it “one of the most challenging times in the history of ITV,” a statement borne out by the steepest quarterly drop in ad revenue since 1965.

ITV Studios, creator of popular shows such as Love Island and Coronation Street, and normally an outperformer, reported a 17% decline to £630m after pausing its production capabilities due to various lockdown measures. Filming at the Rovers did return, and is set to continue despite the new lockdown measures, but the latest numbers may still be lower than ITV have come to expect, and in turn could impact the ITV share price.

The company also suffered the ignominy of being removed from the FTSE 100 in September. As its valuation slumped, ITV was replaced by bargain retailer B&M. This is only the second time since 2004 that ITV has dropped out of the UK’s top 100 companies.

Streaming boom could damage ITV share price further

As ad revenues plummet, ITV and traditional broadcasters face the substantial competition posed by streaming services. Netflix, Disney and Amazon continue to attract new subscribers and eat into ITV’s target market, less burdened by the ad revenue sting felt by broadcasters.

With the nationwide lockdown back for November, streaming services will look to make further inroads into the entertainment market. Despite this, ITV will be hoping to see revenues of Britbox, the company’s streaming collaboration with BBC and Channel 4, improve.

While the return of sport to our screens will have helped boost ITV’s advertising revenues in this quarter, it may be an uphill struggle for the terrestrial broadcaster unless advertising revenue shows evidence of a sustained pickup.

Could latest results bring some good news?

Overall, there hasn’t been that much to cheer this year. Advertising trends did improve in July and August, notably in travel companies advertising getaways, and car and indoor furnishing companies boosting ad spend. ITV’s share price has also risen in recent weeks, a trend investors will hope to see continue.

In order to preserve cash, the company pulled its interim dividend while saying it would continue to focus on reducing costs by £60m on a temporary basis, with a view to making around half of those savings permanent. The company also pulled its guidance for the rest of the year.

ITV release their latest results on Thursday 12 November at 7am. What will happen to the ITV share price?


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