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Wells Fargo Is Holding Its Revenue Estimates For Radio’s Big Two: iHeart And Audacy.

As radio’s first quarter 2022 earnings season gets underway this week, Wells Fargo is sticking with its Q1 revenue estimates of double-digit growth for both iHeartMedia and Audacy.

Wells Fargo’s Q1 revenue estimate of $837 million for iHeartMedia is at the top end of the company’s earlier guidance of 17%-19% year-over-year growth. Wells Fargo media analyst Steven Cahall has slightly lowered his earnings estimate to $151 million from $156 million for iHeart “as we tweak margins” on the company’s multi-platform segment, which includes its 850 radio stations.

For full year 2022, Wells Fargo is keeping its revenue estimate of $4.2 billion for iHeart intact while slightly lowering its earnings estimate to $1.17 billion to $1.19 billion. “We believe the combination of a resilient ad market and operating leverage in the business model provides investors with an attractive entry point,” Cahall says.

Meeting with broadcast company executives last week at the NAB Show, Cahall says second quarter ad growth “remains very strong” on the whole although there are mixed signals on how some ad categories are performing. The travel & entertainment and sports betting verticals “are trending nicely, along with strong political expectations,” he says. But signals from broadcasters suggest “national radio may be slowing” and he picked up some category weakness in specific verticals like consumer-packaged goods and QSR/fast food.

In light of iHeart’s diverse revenue streams – no ad category makes up more than 5% of total revenue – “we believe the company is better positioned to outperform its smaller radio peers on category specific weakness,” says Cahall. “We see an attractive entry point at current levels given our view of the ad market and iHeart’s strong operating leverage.”

Cahall’s Q1 revenue estimate for Audacy is also unchanged at $280 million, which amounts to 16% year-over-year growth and is in line with the company's earlier guidance of revenue growth in the mid-teens. Calling Audacy a “show-me story” as investors wait on the sidelines for “evidence of a sustained revenue recovery,” Cahall’s forecast calls for it to generate $27 million in Q1 earnings, $310 million for the full year, both unchanged from his earlier estimates.

Based on what it picked up at the NAB Show, Wells Fargo says “local radio seems to be outperforming national,” with the former comprising more than two-thirds of Audacy revenue. It’s taking longer than expected for manufacturing’s supply chain to recover and with Audacy’s “outsize exposure” to affected categories like automotive and furniture, Cahall expects “tempered” second quarter pacings from Audacy.

When reporting fourth quarter 2021 results earlier this year, Audacy said it expected to return to 2019 earnings levels in 2022 but Cahall says “some of the softness expected in parts of the market” could push that recovery out further. He is calling for Audacy’s full year earnings estimates to come in at $310 million, below the $340 million the company generated in the pre-COVID year of 2019.

What To Listen For

When iHeart reports on Thursday and Audacy next Monday, investors will be listening for any commentary about current advertising trends to “determine whether there are any leading indicators of an impending ad recession,” Cahall says. While he isn’t expecting full year guidance from iHeart this early in the year, he says he’s eager to hear about its second quarter expectations and early thoughts on the second half. And with Audacy deriving two thirds of its revenue from local business, he’ll have his antenna up to see “if local markets have started to see any softness.”

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