Add radio to the list of things that the omicron variant impacted less than feared. B. Riley analyst Daniel Day says his marketplace checks show there was a “muted” impact on radio and audio advertising spending from the latest pandemic twist. As earning seasons begins, Day tells investors that radio has for the most part “shaken off” the impact of omicron.
That preview of what to expect from company executives as they release their year-end earnings was far from a certainty. As Day notes, because certain advertising categories were heavily impacted in the wake of the Delta variant, investors had expressed concern about a fresh hit to radio during the fourth quarter. But he says that fear now appears “overblown” and that any impact from the pandemic may already be factored in.
“We believe ad categories struggling with supply chain bottlenecks and labor shortages had already lowered ad spending levels to a point where further reductions are unlikely,” says Day. “Additionally, we heard encouraging anecdotes about some supply chain-impacted ad categories such as furniture dealers increasing ad spend meaningfully in the opening weeks of 2022.”
The biggest challenge to radio ad sales remains on dealer lots, where too few cars and trucks to sell has meant a pullback in advertising continues into the new year. But Day says when it comes to auto advertising, there is reason to be optimistic. “Although auto dealers remain the most heavily impacted category, we remain confident that ad spending will stage a slow but steady recovery throughout 2022 and into 2023 as inventories normalize,” he says.
In nine months, Americans will be returning to the ballot box in mid-term elections, offering a fresh influx of political ad spending. While radio is likely to see tens of millions of dollars’ worth of advertising, B. Riley is lowering its political ad forecast for 2022. The firm says it now expects 2022 to bring in about 80% of what was spent during the 2020 federal election cycle. That is slightly less than the 85% to 90% it previously projected.
Day says even with the lower guidance, 2022 political spending will likely remain “well above” 2018 levels and would mark record mid-term year political revenue if achieved. “We believe rising political ad revenue in even years is a structural trend rather than a one-time boost,” he says.
The Promise Of Digital Revenue
A longer-term positive for radio will be digital. “All signs point to continued podcasting and digital audio growth in 2022,” says Day. One encouraging data point comes from AdvertiseCast, which showed that while CPMs tend to decline between the fourth and first quarters, the average podcast CPM rose six percent in January compared to December. Day says iHeartMedia in particular is well-positioned based on its size and the latest Podtrac data showing it remains the leading podcast publisher.
“We see iHeart surpassing $1 billion in digital audio revenue in 2022, driven by another year of above-industry growth in podcast revenue,” Day forecasts, although he says that the triple-digit growth quarters will be tough to repeat this year as the numbers grow larger. He says both Audacy and Cumulus are expected to post digital revenue growth rates of roughly 30% in 2022 with their podcast revenue growing at a more robust 40% pace.
Both Cumulus and Audacy stocks are also trading at what Day calls “left-for-dead valuations.” But those low stock prices are “especially compelling entry valuations” he tells investors. Day thinks Cumulus could even restart a dividend payout this year while Audacy will focus on paying down its debt during the next year or two.