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Analysts Question Whether Cumulus Revenue Has ‘Bottomed Out.’

The national advertising downturn that brought a double-digit revenue decline to Cumulus Media in the third quarter has, so far, shown no signs of slowing down in the fourth quarter. However, company management says “early conversations with advertisers around 2024 expectations are providing cautious optimism that revenue levels have bottomed,” B. Riley Securities notes in a report on the company’s Q3 earnings report. That’s one reason the Wall Street firm is keeping its Buy rating on shares of “CMLS,” albeit with a lowered $10 price target. Other factors in the Mary Berner-led company’s favor are its free cash flow estimates, extending its 2026 debt maturities and/or potential private equity interest in taking the publicly traded company private in the next 12-18 months.

In a sobering takeaway from the company’s latest earnings report, B. Riley analyst Dan O’Day points out that core broadcast radio – network and ex-political spot sales – came in 40% lower than the third quarter 2019 baseline. He calls that “the lowest mark versus pre-pandemic broadcast radio revenue levels outside since 2020.”

Throughout the 2023 ad downturn, radio CEOs have expressed optimism that the crucial fourth quarter holiday season would bring an ad recovery of sorts. But fourth quarter for Cumulus is “showing no signs of recovery,” Day writes, with a caveat: “We would note that 4Q revenue skews toward the back half of the quarter and, if Black Friday/holiday season ad spend proves stronger than anticipated, there is upside to management’s commentary, but they have not heard anything from advertisers that give confidence in a meaningful 4Q recovery to date.”

Still, there is cautious optimism starting to form around 2024 as the B. Riley note references. “Early conversations with advertisers around the 2024 upfronts (where spending commitments are much softer and subject to cancellation in radio as compared to TV upfronts) give management some early optimism that revenue levels are close to a bottom,” Day writes. “Some of the largest advertisers have expressed a desire to increase budgets to more normalized levels next year, and follow-ups with the company indicate that early indications of interest are pacing on par or above where 2023 indications came in (though many of the 2023 campaigns were ultimately subject to cancellations as steep as 50% of the original commitment).” B Riley’s base-case expectation is “a modest increase in network radio in 2024,” around a 3% year-over-year increase, while spot remains flat, “with a potential negative for spot being an actual downturn in the economy resulting in incremental softness in local ad spend, offsetting what looks likely to be at least a modest rebound in national ad spend off depressed levels.”

Meanwhile, the take from Noble Capital is that Cumulus is “in the midst of the advertising trough.” Media analyst Michael Kupinski says he expects that ad cancellations “will be much less than the 50% that it experienced last year.” That should provide the prospect for “a meaningful turnaround in its high margin Network business in 2024,” Kupinski writes. But he expresses concern that Cumulus will be “adversely impacted by a shift toward lower margin revenue, such as podcasting.” With podcast billings up, and high margin network and spot revenue trending down, Kupinski is lowering his fourth quarter and full year earnings estimates for Cumulus. He’s a bit more upbeat about next year, keeping his full year 2024 earnings estimate intact.

Says Kupinski, “Given the prospect of a better economic environment in 2024 and the influx of political advertising, we believe that there will be a better advertising environment next year. In our view, the company is in the midst of its advertising trough, and revenue trends should improve in coming quarters.”

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