Wells Fargo Securities is forecasting digital revenue will continue to grow by double-digit percentages at iHeartMedia for the foreseeable future. In a research note to clients, media analyst Steven Cahall notes the company’s “radio content engine and strong brand recognition” are feeding the iHeart Radio app experience, which contains the world’s No. 1 podcast platform, along with the online streams of radio stations owned by iHeart and other broadcasters and a subscription-based on-demand music service.
“We think IHRT brings at-scale assets that uniquely span the linear/digital divide,” Cahall writes in his investment thesis for the company. With 850 radio stations, Cahall says iHeart is “the unchallenged leader for the traditional ad-supported ‘companionship’ radio experience.” That includes the Premiere Networks stable of syndicated personalities and more than $20 million in revenue from annual events like its ongoing “Jingle Ball” holiday tour, excluding impacts from the pandemic. “CPMs here are attractive to advertisers, and we think IHRT is putting together a more sophisticated reach framework for large-scale national advertisers (e.g. P&G),” Cahall adds.
The company’s 2020 restructuring put “a laser-focus on cost” and that has Wells Fargo expecting company earnings to grow ahead of revenue, which allows the company to pay down debt.
Shares of IHRT, which were up 4% to close at $19.16 on Thursday, are priced “below fair value” which has Wells Fargo keeping its Overweight rating and putting a $34 price target on the stock. “While investors have taken notice of the peer-leading growth in digital revenues/EBITDA, management still believes the stock has yet to receive full credit for their position in relation to the valuations of digital peers,” Cahall writes.
Unified Advertising Tech Stack
The upbeat assessment comes after iHeart was one of several large radio companies to present at Wells Fargo’s 2021 TMT Summit. “Management struck a familiar tone when referencing the strength of the company's digital assets,” Cahall notes. At the summit, iHeart talked up the unified advertising tech stack it built through a combination of investments and internal build-outs that allows the company to package its content across mediums and sell into digital channels. After acquiring Triton Digital from E.W. Scripps Co. in April for $230 million, iHeart has been teasing the launch of its Triton Marketplace in January. It is being positioned as the first and only unified audio marketplace where advertisers can buy audiences across mediums in a digitally-based, data-infused way.
Echoing the “audio is hot” refrain heard from all of the radio operators presenting at the Summit, iHeart pointed to the massive gap between audio consumption and its share of ad spend that continues to hold the space back and predicted that ad dollars will eventually follow the consumer. “HRT should be a key beneficiary due to its leadership position in digital and unmatched scale,” says Cahall.Company management said they expect 10% year-over-year revenue growth for full year 2021 and a return to 2019 earnings levels before the end of the year. “This should put the company on a strong trajectory heading into the new year,” Cahall concludes, with the added benefit of what is shaping up to be a robust political spending cycle in 2022, along with windfalls from the overall radio recovery and continued growth in the digital segment. Wells Fargo estimates iHeart will do over $1.2 billion in earnings in 2022, compared to $1.0 billion in 2019.