Entravision Communications Corporation (EVC) – Accelerates Its Digital Advertising Transition

Friday, October 16, 2020

Entravision Communications Corporation (EVC)

Accelerates Its Digital Advertising Transition

Entravision Communications Corporation is a diversified Spanish-language media company utilizing a combination of television and radio operations to reach Hispanic consumers across the United States, as well as the border markets of Mexico. Entravision owns and/or operates 53 primary television stations and is the largest affiliate group of both the top-ranked Univision television network and Univision’s TeleFutura network, with television stations in 20 of the nation’s top 50 Hispanic markets. The Company also operates one of the nation’s largest groups of primarily Spanish-language radio stations, consisting of 48 owned and operated radio stations.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    Purchases 51% interest in Cisneros Interactive. The company paid $29 million for a 51% stake in the growing digital advertising rep firm based in Miami. There is a put call provision to purchase the remaining portion of the company it does not own in 2024 based on certain financial metrics. Based on the put call provision, the purchase price represents an attractive 6.3 times estimated 2023 operating cash flow of $9.5 million. The company is expected to provide more data points in its upcoming quarterly conference call on November 5th.

    A nice fit.  Cisneros is an advertising rep firm for Facebook, Spotify and LinkedIn in Latin American countries. These companies pay Cisneros a commission on advertising sales, a business that has been growing in both revenues and cash flow even during the current pandemic. Cisneros will dovetail nicely with Entravision’s current infrastructure in Latin America, In addition, we believe that …



This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Industry Report – Media – Quarterly Review: Has The Market Already Factored In The Elections?

Monday, October 12, 2020

Digital, Media & Entertainment Industry Report

Quarterly Review: Has The Market Already Factored In The Elections?

Michael Kupinski, DOR, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to end of report for Analyst Certification & Disclosures

Overview: The fog of the elections.  Some companies have provided positive updated revenues/guidance, but the stocks have had little reaction. We ponder if investors are focused on the outcome of the upcoming elections and not on the positive, current fundamental developments.

Television: Ion provides a positive boost.  The Television stocks slightly underperformed the general market in the latest quarter, although E.W. Scripps had a great quarter, up 30.7%. Scripps surprised the investment community by making a $2.65 billion acquisition of Ion Media, in the midst of a pandemic. The shake-up in the wake of that acquisition leaves us to take a closer look at Gray Television.

Radio: Positive updates provided little investor interest.  The Noble Radio Index was the worse performing in the media sector, down 6.2% in the latest quarter. Notably, investors brushed off some positive, updated revenue numbers by Urban One and Townsquare Media. The Townsquare update, in particular, implies that it will solidly beat Q3 expectations. We highlight this sector as among our favored play for the upcoming quarter.

Publishing: Can the momentum continue?  The Tribune shares outperformed the general market and most of its peers in the third quarter, up 16.7% versus 8.5% for the general market. We believe that the outperformance of the industry in the quarter, in general, and that of Tribune, in particular, has investors possibly rethinking their view of the industry.

Digital/Entertainment: Gaming is hot.  Gaming and esports have garnered attention of Wall Street with an active number of deals. In this broad sector, we highlight the recent initiation of Travelzoo, a unique way to play the advertising recovery in the travel industry. In addition, we highlight the strong performance of 1800Flowers.com. The stock was up 144% in the quarter, benefiting from the surge in online retail. We recently raised our price target on the FLWS shares.

Overview

The Fog Of The Elections

Most media stock indices were in line to slightly outperforming the general market in the third quarter, save the Radio stocks, as the following figure illustrates. The overall media performance is disappointing given that media stocks tend to outperform the general market in the early stage of an economic recovery. The media indices are market cap weighted. What is notable regarding the media performance is that there was a disparity between larger cap and smaller cap companies. For instance, the average media stock was down in the quarter. 

Off of a difficult (to say the least) second quarter, revenue trends are expected to sequentially improve in the third quarter, fueled by Political advertising and digital revenues. Investors have now realized, however, that the shape of the advertising recovery is not likely to be “V” shaped. Third quarter revenues, excluding Political, are expected to be down double-digits for many advertising driven mediums, in the range of 10% to 15% versus 30% to 40% experienced on average in the second quarter. For mediums that benefit from Political advertising, we believe that there likely will be some positive upside Q3 revenue and cash flow surprise potential. Political is coming in better than expected and some companies, discussed later in this report, gave updated third quarter and/or Political guidance. The question will be whether investors will brush off the potential revenue and cash flow upside surprise?

We believe that investors are heavily engaged in the outcome of the general elections and implications for the broader economy. Investors worry that a Biden win could imply that tax rates will go up, given his tax platform plans to rollback the Trump tax cuts. We are often asked, when should we lock in gains? Now? Or, after the election? That question is not of significant importance for most media investors. The only media sectors that investors may have gains over the course of the last year are Publishing and Digital Media stocks, up 13% and 19%, respectively. Television and Radio stocks are down 27% and 46% respectively. 

In addition, with many state economies not fully opened, investors are likely concerned about the sustainability of the economic recovery, especially without visibility of a Covid vaccine. Given these concerns, investors may have already discounted the potential revenue and cash flow upside in the third and fourth quarters from Political advertising. We highlight the fact that Townsquare Media’s (view report) stock did not significantly react to the company’s updated third quarter revenue guidance on September 21, which provided positive upside in revenue and implied positive cash flow expectations. The TSQ shares increased a modest 5% since that announcement. As such, while we believe that fundamentals are improving, it appears likely that the media stocks may be range bound until the elections are over, or that there is a developed timetable for a Covid vaccine, which may allow some normalcy to reopening the US economy. 

Tradition Media

Television

Ion Got Investors Positively Excited

The Television stocks slightly under-performed the general market in the last quarter, up 6.9% versus 8.5% for the market as measured by the S&P 500 Index. The best performing stocks in the index were ViacomCBS and E.W. Scripps, up 20.1% and 30.7% respectively. In the case of E.W. Scripps, the company announced a significant $2.65 billion acquisition of Ion Media, with the backing of Warren Buffet’s Berkshire Hathaway. Notably, the acquisition will bring Scripps to the current ownership cap of 39% of US TV households. This takes another potential buyer of local TV stations out of the market, leaving Gray Television as among the few large broadcasters with the ability to add stations. Gray Television currently covers 24% of the nation’s TV households, with a significant runway to get to 39%. The question will be whether another inning of consolidation is in the offing with the mid tier broadcast groups, like Meredith and Graham Holdings. But, there is no mistaking, the industry is in the final innings of consolidation, unless there is relaxation of ownership rules. 

Such a prospect may come from the courts. Recently, the U.S. Supreme Court agreed to examine the media ownership rules that the FCC directed to relax, but was blocked by the 3rd Circuit Court of Appeals. The FCC would have ended or loosened ownership limits such as 1) the elimination of the newspaper/television cross ownership rule (which would allow a company to own a newspaper and television station in a single market), 2) the elimination of radio/television cross ownership, 3) the elimination of owning two of the top four stations in a market, and 4) allow a company to own two TV stations in a single market. The prospective appointment of another conservative on the bench, like Amy Coney Barrett, could significantly improve the chances that the FCC would win the appeal. 

For most investors, these rules don’t matter much. The Television industry is not likely to buy a newspaper or radio in an existing market. In many cases, public market values for television groups are double that of a publishing or radio company. Investors would frown on potentially lowering the stock valuation on such an acquisition. In addition, the history of broadcasters successfully integrating and operating a newspaper in market or even radio stations under grandfathered rules have not been that good. TV broadcasters would more likely seek to own two of the Big Four Network affiliates in market. This is where a broadcaster would get the biggest bang for the buck and investors would cheer. Those opportunities will be few and far between given the recent consolidation. Consequently, we view the prospective rule ownership changes as ho hum from a TV perspective. It would be far more beneficial to the TV stocks to see the ownership cap lifted from the current 39%. There does not seem to be any political will or leadership to push for that change. 

Consequently, we believe that management’s will turn their attention to seek opportunities for internal growth. Recently, a number of broadcasters have launched expanded news programming. We believe that it is likely that broadcasters will invest in original programming to take advantage of their increased scale. News programming tends to be the lowest hanging fruit for a broadcaster. But, development of original programming is only modest incremental steps toward enhanced cash flow growth. In our view, broadcasters will need to seek ways to take advantage of their spectrum and find innovative revenue opportunities, possibly through the implementation of the new broadcast standard, ATSC 3.0.

As we look toward the third quarter reports and fourth quarter guidance, investors will look toward the revenue recovery for some direction. There were some early indications that it will be a strong Q3 revenue quarter, fueled by Political advertising. E.W. Scripps (view report) raised its Political advertising guidance from $200 million to over $230 million. That guide was impressive given that it was based solely on the strength of Political advertising in the third quarter. The company may once again increase its guidance, if, as we expect, the Political advertising momentum continues into the fourth quarter. Political advertising carries very high margins. As such, it is likely that there will be positive upside surprises in the quarterly results. 

Given that the vast majority of the Television stocks have not performed well in the latest quarter, we believe that there should be better performance in the fourth quarter. In our view, the market has not baked in the improving revenue trends and the upside surprise potential from Political. In addition, the stocks should perform better as the fate of the upcoming elections is known. We remain constructive on the television sector, with our favorites currently Gray Television (view report) and Entravision (view report). 

Radio

Did Investors Overlook The Favorable News?

Radio stocks under performed the general market in the third quarter, down 6.2% versus an 8.4% gain for the market as measured by the S&P 500 Index. The Noble Radio index is market weighted, and, as such, the performance was skewed by the larger cap stocks in the index. The average stock was down greater than 6% and closer to 10%, with the worse performing stocks in the latest quarter Beasley Broadcast Group (BBGI), Salem Media (SALM) (view report) and Saga Communications (SGA), down 49%, 19% and 22%, respectively. The shares of Cumulus Media (CMLS) outperformed the group, up 35.9% in the quarter, with Entercom (ETM) coming in second, up 16.7% and Townsquare Media (TSQ) up 4.3%. The outperformance of the Cumulus Media shares in the second quarter was off of a very low base established at the end of the first quarter, when the shares dropped from a high of over $16 to near $4.  

The under performance of the Radio stocks is in spite of the expected sequential improvement in third quarter revenues from the second quarter, when some radio broadcasters reported revenues down as much as 60%. Recently, Urban One announced in an 8K filing that its radio revenues declined 40% in July and 38% in August, with September down a more modest 11%. Combined with the company’s other businesses outside of radio, Urban One’s third quarter total company revenue is expected to be down in the high teens percent. Townsquare Media appears to be doing better than most in the industry. It updated its investor presentation on September 21st and indicated that its July and August total company revenues declined 21% in July and 16% in August. We expect that. much like Urban One, there will be a significant improvement in revenues for September. In addition to a higher than expected amount of Political advertising, Townsquare appeared to be benefit from strength in its Digital businesses. The company indicated that its Townsquare Interactive business increased revenues in July and August by 13% and 15%, respectively. We believe that investors have not fully baked in the significance of this revenue improvement. In addition, given the high margin revenue, we believe that there are positive upside cash flow surprise potential. 

Radio is among the most out of favored stocks in the traditional media landscape. The recent under performance of the sector is likely a combination of the industry’s relatively high debt leverage and an extraordinary impact from Covid mitigation efforts. Given that the stocks are down an average of 52.4% year to date, the Radio stocks have been the poster industry for among the worse performing of many industries adversely affected by Pandemic. Are investors paying attention to the improving revenue trends? Surprisingly, the shares of Townsquare Media increased a modest 5% following the company’s announcement that implied it will exceed third quarter revenue and cash flow expectations. In our view, there likely will be further positive developments into the fourth quarter as well. So, in our view, the answer is no. 

Given the relative under performance thus far, Radio stocks lead as among our favorites for the upcoming quarter. We believe that the stocks do not reflect the prospect for positive revenue and cash flow upside surprise potential, nor the prospect that expectations may be raised for the fourth quarter. Our current favorites include Townsquare Media, Cumulus Media and Salem Media, in that order.

Publishing

The Dinosaurs Just Beat The Market!

The Publishing stocks had a relatively good quarter, up 9.1%, slightly outperforming the general market as measured by the S&P 500 Index. The three largest cap stocks in the index News Corp., New York Times and Tribune Publishing accounted for the gains, with News Corp. and Tribune accounting for the majority of the third quarter out performance, up 18.2% and 16.7%, respectively. Notably, all three companies have significant digital businesses, which have weathered well in the Pandemic given increased digital subscriptions, visitors and engagement. 

Focusing on Tribune, we believe that in spite of the recent rise, the shares are significantly undervalued. Trading at roughly 4.5 times Enterprise Value to our estimated cash flow, we believe that the shares do not reflect the underlying value of its assets, particularly its e-commerce business, BestReviews, nor reflect the positive upside cash flow potential. In spite of recent upward revisions to our estimates, we believe that earlier cost cutting actions at the company are not fully realized. Our third quarter estimate was revised upward, but was at the lower end of the company’s guidance. In addition, we believe that we were conservative in our fourth quarter estimates. 

Given the improved fundamentals, the company is building its cash hoard, estimated to be over $90 million. Given the prospect that the company may sell BestReviews and given its pristine balance sheet, with virtually no debt, the company’s board may reinstate its $0.25 per share quarterly dividend. The dividend was suspended in the second quarter due to concerns over Covid. 

The shares of Tribune (view report) are among our favorite economic recovery plays. Nearly one third of the company’s market cap is reflected in its cash position. Another third of the company’s market cap is reflected in the value of its 60% owned BestReviews business. This leaves only one third of the value of the company reflected in the cash flow generating publishing and digital businesses. Notably, should the company reinstate its dividend, near current levels, the shares would offer an annualized dividend yield of over 7%. We continue to view the TPCO shares as among our favorites. 

Digital/Entertainment

Gaming Sector Receives A Pandemic Tailwind

Video games has been one of the few sectors of the economy to benefit from Covid-19.  Covid-19 lockdowns have boosted user engagement with video games and esports as consumers shelter in place.  The pandemic is accelerating existing trends in the gaming industry.  In April, the first full month of sheltering in place resulted in a 50% sequential increase in gaming hours watched on Twitch, the most popular video game streaming platform.  Viewer engagement numbers for 2Q 2020 (which are not out yet) are expected to reach all-time highs.  According to market research firm NPD Group, 244 million people in the U.S., or three out of every four, play video games, an increase of 32 million people in the last two years alone. 

As millions have been quarantined at home, many have looked to esports for entertainment.  Deloitte’s 2020 digital media trends survey found that, during the crisis, a third of consumers have, for the first time, subscribed to a video gaming service, used a cloud gaming service, or watched esports or a virtual sporting event.  According to Nielsen, while most consumers prefer to play games rather than watch others play,  one-third of esports fans say they watched esports as an alternative to traditional TV content. 

Like many ecommerce or online businesses, the pandemic has pulled forward and accelerated many trends that were already underway.  It will be interesting to see whether these gains can be maintained as people slowly return to work. 

Gaming Sector M&A Heats Up    

The significant increase in time spent streaming games has helped to drive M&A activity in the gaming space to new levels. Noble tracked 14 gaming transactions in the third quarter with a transaction value of $11.7 billion.  Two transactions alone account for $11.2 billion of this total:  Microsoft’s $7.5 billion acquisition of gaming studio/game developer ZeniMax Media, and the $3.5 billion reverse merger between esports platform Skillz and the SPAC Flying Eagle Acquisition Corp. Historically Noble tracks M&A transactions in the internet and digital media sectors and focuses on transactions in North America and Europe. The chart below shows the largest gaming/esports transactions in 3Q 2020 in those respective regions. We should note that the largest number of M&A deals in the sector in 3Q took place in Asia, which is home to the largest gaming audiences. 

Internet & Digital Media M&A Sees Sequential Improvement in 3Q 2020

During the third quarter, Noble tracked 105 M&A transactions in the internet and digital media sector. This represents a 5% sequential improvement over the 100 M&A transactions we tracked in 2Q 2020. Third quarter deal values totaled $28.1 billion, a 118% increase over 2Q 2020 levels, as four deals alone accounted for nearly $25 billion worth of deal value.  The largest deal was Adevinta’s acquisition of eBay Classified Group for $9.2 billion, followed by the gaming deals mentioned earlier (Microsoft’s $7.5 billion acquisition of gaming studio/game developer ZeniMax Media, and Skillz’ $3.5 billion reverse merger with Flying Eagle Acquisition Corp). Blackstone’s $4.7 billion acquisition of information/genealogy company Ancestry.com was the fourth deal of more than $1 billion that we tracked. 

Of the 105 deals we tracked in 3Q 2020, 37 of them were in the digital content category, while the marketing technology sector trailed with 26 deals, followed by the always active advertising agency deals with 23. These three sectors were also the most active sectors in the first and second quarters of 2020. 

The digital content sector had not just the largest number of transactions, but also the largest value of deals in the third quarter, with $22.2 billion of deals, or 79% of the entire deal value of the internet and digital media deals we track. Within the digital content segment, the gaming sector accounted for 14 of the 37 transactions and totaled $11.7 billion in deal value or nearly 53% of total digital content deal value.

Other segments of digital content where M&A was strong includes video focused transactions (6 transactions), publishing (4 transactions) and audio (5 transactions, 4 of which were in the podcast space). Notable video focused deals include CuriosityStream’s $512 million reverse merger with the SPAC Software Acquisition Group, and Enthusiast Gaming’s $34 million acquisition of Omnia Media, a YouTube Video Gaming Network.  Notable digital publishing deals include Red Venture’s $500 million acquisition of CNET Media Group from ViacomCBS.  Notable audio deals include SiriusXM’s $325 million acquisition of podcast network Stitcher from E.W. Scripps; The New York Times’ $25 million acquisition of podcast programmer Serial; and the $70 million acquisition of Rhapsody International from MelodyVR Group. 

Internet and Digital Media Stocks Continued To Rebound

In our 2Q media newsletter we noted that every single stock in the four sectors we monitor was up in the quarter.  While 3Q 2020’s performance was not nearly as strong, all sectors performed well, and three of the four sectors outperformed the S&P 500. In the third quarter the S&P 500 index increased by 8.5%, while Noble’s Adtech Index increased by 26%, Noble’s MarTech Index increased by 19%, Noble’s Social Media Index increased by 16%, and Noble’s Digital Media Index increased by 4%.    

While last quarter saw 5 stocks more than double off their March lows, only one company, Autoweb (AUTO, +143%), posted a more than doubling of their stock price. The stock surged when the company provided a 3Q mid-quarter update that showed that gross margins in July 2020 had nearly doubled from July 2019 levels resulting in positive adjusted EBITDA (versus a loss a year-ago), and provided further evidence of the company’s turnaround. 

Autoweb wasn’t the only adtech stock to perform well during the quarter. E-commerce retailing was hot, driven by stay at home mandates and social distancing. 1800Flowers.com’s (view report) stock increased 144% from March lows in the latest quarter. The company reported that its fiscal fourth quarter end June 30 revenues increased a strong 61%. We believe that e-commerce trends will remain strong even as the pandemic subsides.  Other notable performers included the stocks of Quinstreet (QNST,+51%) and Fluent (FLNT, +39%). It’s interesting to note that all three of the best performing advertising technology companies are lead generation businesses.  As companies re-open their businesses post-pandemic, it’s expected that performance marketing companies will do well as companies focus less on branding and more on generating new business, an imperative for many businesses that have struggled during the pandemic. Several other adtech stocks performed well during the quarter including the stocks of Synacor (SYNC, +34%), Perion Networks (PERI, +34%), The Trade Desk (TTD, +28%) and Interclick Interactive (ICLK, +25%). 

Marketing tech stocks that performed well during the quarter include Salesforce (CRM, +34%), Hubspot (HUBS, +30%), Brightcove (BCOV, +30%), SharpSpring (SHSP, +27%), and LivePerson (LPSN, +26%). As noted in our M&A study, MarTech was one of the most active sectors in M&A during 3Q 2020, but M&A was not a driver of stock price performance.  Strong organic revenue appears to be the sector driver, with revenue growth exceeding 20% on average.

Social media stocks also performed well during the quarter, with our index up 16%. Our index is market cap weighted so it generally performs in-line with how Facebook has performed. Nevertheless, several social media stocks significantly outperformed, including Twitter (TWTR, +49%) and Spark Networks (LOV, +48%). While the stock of Snap Interactive (SNAP, +11%) underperformed its peers during the quarter, it consolidated its gains for the year (+60%) and is the strongest performing social media stock in 2020.

Digital media stocks were the only stock sector to underperform the S&P 500, as shares of Google (GOOG.L) were up only 3%, and Google represents 73% of the market cap of this market-cap weighted sector. Google posted its first year-over-year quarterly revenue decline in the company’s history and like Apple, Amazon and Facebook, is under intense regulatory scrutiny as the Justice Department reviews potential anti-competitive behavior among big tech companies. Despite Google weighing on the sector, several digital media stocks performed well including The Leaf Group (LEAF, +37%), The Maven (MVEN, +37%), Travelzoo (TZOO, +14%) and Netflix (NFLX, +10%). We encourage investors to focus on the advertising recovery in the travel industry and the unique way to play the space with Travelzoo (view report), among our favorites. 

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
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NOBLE RATINGS DEFINITIONS % OF SECURITIES COVERED % IB CLIENTS
Outperform: potential return is >15% above the current price 88% 41%
Market Perform: potential return is -15% to 15% of the current price 12% 5%
Underperform: potential return is >15% below the current price 0% 0%

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E.W. Scripps Company (SSP) – Ion Media Acquisition; Positively Viewed

Friday, September 25, 2020

E.W. Scripps Company (SSP)

Ion Media Acquisition; Positively Viewed

The E.W. Scripps Co. (www.scripps.com) serves audiences and businesses through a growing portfolio of television, print and digital media brands. After approval of its acquisition of two Granite Broadcasting stations later this year, Scripps will own 21 local television stations as well as daily newspapers in 13 markets across the United States. It also runs an expanding collection of local and national digital journalism and information businesses including digital video news service Newsy. Scripps also produces television programming, runs an award-winning investigative reporting newsroom in Washington, D.C., and serves as the longtime steward of one of the nation’s largest, most successful and longest-running educational programs, Scripps National Spelling Bee. Founded in 1879, Scripps is focused on the stories of tomorrow.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    Plans to acquire Ion Media for $2.65 billion. The acquisition will double the company’s current size in both revenues and cash flow and position it as among the top broadcast groups. The purchase price at 8.2 times cash flow, or 5.9 times post synergies, appears attractive. The company agreed to sell 23 ION stations for regulatory fast track. The transaction is expected to close in Q1 2021.

    Berkshire lends a hand.  Berkshire Hathaway is helping to fund the deal with $600 million in preferred equity that carries an 8% dividend rate, redeemable after five years. In addition, Berkshire will receive warrants to purchase up to 23.1 million Class A shares, exercisable at $13. We believe that this move …



This research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Townsquare Media Inc (TSQ) – Revenues Trending Better Than Expected

Wednesday, September 23, 2020

Townsquare Media Inc (TSQ)

Revenues Trending Better Than Expected

Townsquare Media Inc is an entertainment and media company offering digital marketing solutions in the United States and Canada. It owns and operates radio stations, social media properties focusing the small and mid-cap companies. Services offered to the clients include live events, local advertising, digital advertising, e-commerce offerings, few others. The segments through which the company operates its businesses are classified into Local marketing solutions and Entertainment segments. Revenues are generated from commercials through broadcasts and sale of internet based advertisements.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    Q3 Update. Management filed an 8K yesterday that highlighted July and August total company revenues are trending better than our expectations. July and August revenues were down 21% and 16%, respectively. We believe that September is sequentially better than August, and, as such, Q3 revenues are trending better than our down 21% estimate.

    Strong Political.  We believe that a portion of the upside is due to stronger-than-expected Political advertising, which we estimated to be $2.1 million for the quarter. This is high-margin advertising, and higher Political revenue should lead to a positive upside Q3 cash flow surprise …



This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Travelzoo (TZOO) – Initiating Coverage; A Compelling Play On The Travel Industry Recovery

Monday, September 14, 2020

Travelzoo (TZOO)

Initiating Coverage; A Compelling Play On The Travel Industry Recovery

Travelzoo is a US-based company which acts as a publisher of travel and entertainment offers. The company informs a varied number of members in Asia Pacific, Europe, and North America, as well as millions of website users, about the best travel, entertainment and local deals available from various companies. It provides travel, entertainment, and local businesses in a flexible manner to the various customer. The company operates in three geographic segments namely Asia Pacific, Europe, and North America. Travelzoo derives its revenue through advertising fees including listing fees paid by travel, entertainment, and local businesses to advertise their offers on company’s media properties. Most of the company’s revenue is derived from the North America.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    A different kind of travel company. Travelzoo is a media company wedded to the travel industry. We anticipate a long tail travel advertising recovery, which should take shape later this year. Unlike business travel, which may be forever changed by Covid, Travelzoo is a compelling advertising recovery play on leisure travel. We believe that there is pent up demand for leisure travel given a strong favorable responses to travel vouchers with price promotions and no change fees.

    Financially capable of weathering the crisis.  As of June 30, the company had $25.5 million in cash and virtually no debt. The company benefited from an influx of cash from the sale of travel vouchers. We believe that the company will swing toward free cash flow in the fourth quarter and build upon its strong financial position in 2021 and 2022 …



This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

E.W. Scripps Company (SSP) – Why We Are Raising Cash Flow Estimates & Price Target

Wednesday, September 9, 2020

E.W. Scripps Company (SSP)

Why We Are Raising Cash Flow Estimates & Price Target

The E.W. Scripps Co. (www.scripps.com) serves audiences and businesses through a growing portfolio of television, print and digital media brands. After approval of its acquisition of two Granite Broadcasting stations later this year, Scripps will own 21 local television stations as well as daily newspapers in 13 markets across the United States. It also runs an expanding collection of local and national digital journalism and information businesses including digital video news service Newsy. Scripps also produces television programming, runs an award-winning investigative reporting newsroom in Washington, D.C., and serves as the longtime steward of one of the nation’s largest, most successful and longest-running educational programs, Scripps National Spelling Bee. Founded in 1879, Scripps is focused on the stories of tomorrow.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    Back on the air. The company announced that its 27 TV stations are back on the air on The Dish Network, which completed Retransmission contracts on 42% of the Scripps pay TV households.

    Favorable revenue impact, true-up payment as early as Q3.  We estimate that the true-up payment from March 1st to July 25th when the SSP stations were aired without contract on Dish will be roughly $10 million in revenues, ($1.25 per sub variance from the old contract to the new contract on an estimated 18 million subscribers). As such, we are raising our full year 2020 Retransmission revenue from …



This research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

The Biggest COVID Winners are in the Business of Making Winners

 

Esports Betting is on a 4,000% Winning Streak

 

There’s a habit I picked up working on a Wall Street trading desk years ago. I don’t admit this to my friends that are not active in the markets; they wouldn’t understand. But, I think Channelchek users will be able to relate to it. Perhaps you do this yourself: When global news unfolds, my initial reaction is not, “oh my god, that’s horrible,” or even “hey, that’s fantastic.” My first mental response, usually unspoken, asks, “Is this bullish or bearish? Who wins, who loses? How will it impact different business sectors?”  I haven’t worked on a large trading desk for a number of years, but this habit is still ingrained in me — Hurricane. “Who sells lumber?” War in the Mideast. “Will there be an oil disruption?” Lehman goes bust? …well, you get the point.

When the initial talk of the novel coronavirus, social distancing, lockdowns, and working remotely started to become a reality, this instinct was in high alert. Back in March, when Disney decided to close their theme parks, I was speaking with the Noble Capital Markets trading desk and others in the market whom I trust. We were sure who this would be the worst for. Any company related to travel and hospitality was expected to see severe weakness. After this weakness, we saw an eventual opportunity. The conversations then led to discussions determining what public companies this would quickly benefit. We were spot-on thinking credit card companies, tech and communication services, and of course, some pharmacy and biotech names. However, what was never on my radar, yet in hindsight, makes so much sense, is esports and, more precisely, betting on esports (electronic sports).

Sports Betting

In 2018 the Supreme Court ruled that a federal ban on sports betting was unconstitutional. Since then, the market in the United States for sports betting has grown dramatically.  Seventeen states, in addition to Nevada, have now legalized sports betting in various forms. With the growth in this offshoot of two industries (professional sports and gambling) investments in esports and have taken a steep upward trajectory.

Esports Meets Pandemic

As entertainment from more traditional professional sports became unavailable with the suspension and cancellation of regular season play earlier this year, some athletes and spectators pivoted and joined the ranks of the already growing population of esports athletes and audience members. As esports became a higher percentage of the few professional sports competitions being broadcasted with any consistency, esports competitions filled the void for those that enjoy the thrill of human competition. Making it even more inviting is that many casinos closed with concerns over COVID-19.  The potential for many sportsbook operators to grab an increased share of esports gambling from these online sports grew and is still growing.

How Much Growth

Forecasts for the industry suggest that even as traditional sports return (both in-person and on our flat screens), the growth in esports and wagering on it will remain on a strong path upward. According to one report that reviewed betting data across ten bookmakers in the months of March and April of this year, esports betting was shown to have grown by 4,000%. Much of this explosion was captured by two major esports titles, FIFA and NBA2K, but others experienced even higher growth from their lower base.  The study also brought to light those involved.  Half of the core betting audience of esports is represented by high income, full-time professionals between ages 26 and 35. This demographic grew up playing computer and console games. Their interest isn’t unlike someone thirty-years older naturally betting on a boxing match or a bowl game.

The opportunity for long-term growth in the industry is high as gamblers become more aware of esports and its offerings. Additionally, betting opportunities are more plentiful in esports because, for example, a single FIFA match takes 8 to 15 minutes while a football game lasts hours. Additionally, esports is not seasonal — competitions occur year-round with no off-peak periods.

Who Wins in the End

Had I known in March when travel came to a screeching halt, professional sports were halted, and the Las Vegas strip hung “Closed” signs on their doors, what I know now, would I have included esports in my conversations as presumed winners in a pandemic world? That’s hindsight. The best investors look forward. I have been discussing this now with people involved in the markets. It is now on my list of growth industries. The reason is simple, despite its explosive growth from obscurity, the potential for an even greater number of people involved as both players and those wagering is a large multiple from its current state. I certainly wouldn’t bet against it.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading:

Will the COVID Crisis Permanently Change the
Way We Work?

Virtual Power Plants

Advertising Budgets are Going Where the Eyes Are

 

Enjoy the Benefits of Premium Channelchek Content at No Cost

Each event in our popular Virtual Road Shows Series has maximum capacity of 100 investors online. To take part, listen to and perhaps get your questions answered, see which virtual investor meeting intrigues you here.

 

Sources:

Rise in Esports Betting

Esports Taking Over Traditional Sports in COVID 19

Research Shows a Growing Interest in Esports Gambling

E-sports betting guide – Best bookmakers to bet on e-sports

 

Release – A Marketing Services Company that Investors May be Overlooking

Senior Media Analyst at Noble Capital Markets Discusses the Pandemic’s Impact on Ad Revenue – He Details a Company Investors May be Overlooking

 

Michael Kupinski, Director of Research and Senior Media and Entertainment Analyst at Noble Capital Markets, discusses with Proactive Investors how the media industry is faring during the pandemic. He breaks down the pandemic’s impact on various mediums and looks forward to the political advertising season.

Kupinski then looks past the pandemic and details a particular marketing services company that investors may be overlooking.

Click on the video below to see the interview.

 


 

Harte-Hanks Inc. (HRTH) – Recovering Better Than Expected

Friday, August 14, 2020

Harte-Hanks Inc. (HRTH)

Recovering Better Than Expected

Harte-Hanks is a marketing services company that provides multichannel marketing solutions as well as consulting, data analytics, and strategic assessment. The company’s offerings focus on business-to-business, retail, finance, and automotive segments through digital, social, mobile, and print media offerings. Harte-Hanks strives to develop better customer relationships through its marketing and analytical services for clients. The majority of its revenue is derived from its marketing services in the retail, technology, and consumer brand segments.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    Overachieves Q2 results. Revenues of $41.6 million was better than our $38.5 million estimate and reflected a 23.9% year-over-year quarterly revenue decline, better than many traditional media companies in Q2. Cash flow, as measured by Adj. EBITDA, was a better than expected $480,000 versus our estimate of $150,000. We believe that the results reflect that the company’s transition toward revenue growth is on track.

    Stabilizing revenues? We believe that Q2 revenues may reflect a stabilization in the company’s revenues, possibly the first time since 2016. Q2 revenues showed a sequential quarterly improvement from $40.5 million in Q1 and we estimate that Q3 revenues will …



    Click to get the full report

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision.
 

Advertising Budgets are Going Where the Eyes Are

 

Ten years ago 15% of Ad Money was Spent on Internet Ads, Guess what that Percentage is Today?

 

Soap operas, magazines, TV sports, local radio; they all allow niche target-advertising.  But, their slice of the advertising-dollar pie is shrinking precipitously. This trend has been in place for a while and still accelerating. Traditional ways to reach motivated buyers are losing out to the newer competitors for ad-dollars. In 2020, this has become even more complicated.

 

The days of scanning through newspapers for sales or dentist office magazines to learn more about a product are almost nostalgic. Ad-Targeting is much more refined in the new digital world. With a more accurate dataset of consumer likes and dislikes, online advertising has leaped to the forefront of marketing strategies. Marketers have recognized the consumer trends and have adapted to meet them; targeted digital advertisements allows them to be significantly more strategic.

 

Advertising Spending Trends

A bit over a decade (2009), the internet represented only 15% of all U.S. ad spending.

               Total dollars spent: $117 Billion

               TV: 39% of ad spending

               Print Media: 34% of ad spending

               Internet: 15%

 

Today (2020), more is spent on internet advertising alone than all U.S. ad spending of ten years earlier.

               Total dollars spent: $263 Billion (est.)

               TV: 28%

               Print Media: 11%

               Internet: 53%

 

Share of U.S. Ad Spending by Medium, 2009 (left) vs. 2019 (right)

Internet ad spending captured nearly half of ad dollars in 2019, up from about 15 percent a decade ago.

 

2020 and Beyond

The average social media user spends 2-plus hours a day browsing their feeds. The larger social media providers are monitoring people’s usage, likes, and dislikes. This creates a massive smart-platform for target-marketing products. The platforms continue to update and improve their methods, including increasingly higher levels of sophisticated algorithms—essentially artificial intelligence to connect a to users in their niche. The relevance of ads that users encounter is now superior to that they would see or hear from more traditional outlets. The big providers, Facebook, Snapchat, Twitter, and Instagram, all offer promoted advertisements that pop up on users’ pages while they scroll their feed. On average, users connect with three or more of their social media accounts a day.

 

Social Media ad spending is forecast to increase by 20% to $43 billion in 2020. Television advertising has been hard hit, not by social media competition, but by the lack of aired sports competitions. With the postponement of 2020 Summer Olympics $1.2 billion, the cancellation of March Madness and sports in general, the NBA and NHL playoff cancellation could cost $2 billion, and the seasons could cost around $700 million.    New estimates forecast that U.S. TV advertising spending will decline between 22.3% and 29.3%, mostly due to the curtailment of sports programs.

 

Google ad revenue is projected to be $39.5 Billion in 2020; this is down by 5.3% from 2019. The decrease is a direct result of the steps to curtail the coronavirus, which shut many businesses down and caused others to go into “safety mode” by cutting their spending. However, spending is expected to rebound at unprecedented rates, up 20% in 2021 as businesses begin to restart.

 

Ad spending on podcasts is forecast to grow 15% from 2019 to around $3.4 B by year-end. Around 40% of Americans now listen to podcasts on a monthly basis. Companies are adapting to new sectors to reach new markets.

 

Take-Away

Although 2020 has provided some one-time reshuffling of ad-dollar resources, the trend toward social media platforms is firmly in place. This is worth noting if you manage a media company, adapting and changing business models may put you in a position to take advantage of these changes. Investors may find undervalued traditional media companies that have been tossed out with others– those that a bit of research indicate are making smart moves. As for social media outlets, it looks like advanced data-driven technology is giving them their day in the sun.

 

Suggested Reading:

Will Broadcast Mergers and Acquisitions Surge?

More Accurate than Polls to Gauge Election Outcomes

Cashing In

 

Enjoy the Benefits of Premium Channelchek Content at No Cost

Each event in our popular Virtual Road Shows Series has maximum capacity of 100 investors online. To take part, listen to and perhaps get your questions answered, see which virtual investor meeting intrigues you here.

 

Sources:

https://adage.com/article/year-end-lists-2019/internet-medias-share-us-ad-spending-has-more-tripled-over-past-decade/2221701

https://en.wikipedia.org/wiki/Television_consumption

https://www.mediapost.com/publications/article/350281/us-tv-average-ad-spending-to-sink-25-in-the-fir.html

Picture: Etrade advertisement from the day after Superbowl February 2009.

QuoteMedia (QMCI) – Keeping The Foot On The Pedal

Thursday, August 13, 2020

QuoteMedia (QMCI)

Keeping The Foot On The Pedal

QuoteMedia, based in Fountain Hills, Arizona, provides cloud-based financial data, market news feeds, and financial software solutions.  Its customers include financial service companies, online brokerages, clearing firms, banks, media portals, public corporations and individual investors.  The company provides a single source solution providing products such as streaming quotes, charting, historical data, technical analysis, news and research.  Information can customized and provided to multiple platforms including terminals and mobile devices.

Michael Kupinski, DOR, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    Q2 results softer than expected. Q2 revenues were relatively stable in a very difficult operating environment and against tough year earlier comparisons. Revenues were $3.029 million, a new quarterly record for the company, in line with our $3.050 million estimate. Operating cash flow, as measured by adjusted EBITDA, was $214,000, below our $486,000 estimate, reflecting investments in new products to be launched later in the year.

    Keeping the foot on the pedal. Management indicated that it plans to maintain its investment spending on new products and and features to be launched late in the current quarter. It may back off investment spend if the operating environment deteriorates. But, in our view, the company has enough liquidity and runway for the heightened spending. We believe that the new products and features should …



    Click to get the full report

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision.
 

Cumulus Media Inc. (CMLS) – Planned Asset Sales Enhance Investment Appeal

Wednesday, August 12, 2020

Cumulus Media Inc. (CMLS)

Planned Asset Sales Enhance Investment Appeal

CUMULUS MEDIA, Inc. (NASDAQ: CMLS) is a leading audio-first media and entertainment company delivering premium content to over a quarter billion people every month — wherever and whenever they want it. CUMULUS MEDIA engages listeners with high-quality local programming through 428 owned-and-operated stations across 87 markets; delivers nationally-syndicated sports, news, talk, and entertainment programming from iconic brands including the NFL, the NCAA, the Masters, the Olympics, the GRAMMYS, the American Country Music Awards, and many other world-class partners across nearly 8,000 affiliated stations through Westwood One, the largest audio network in America; and inspires listeners through its rapidly growing network of original podcasts that are smart, entertaining and thought-provoking. CUMULUS MEDIA provides advertisers with local impact and national reach through on-air, digital, mobile, and voice-activated media solutions, as well as access to integrated digital marketing services, powerful influencers, and live event experiences. CUMULUS MEDIA is the only audio media company to provide marketers with local and national advertising performance guarantees.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    Overachieves cash flow on softer revenue. Q2 total company revenues of $146.0 million, down 46.6% yoy, was lighter than our $151.5 million estimate. Adjusted EBITDA loss of $6.3 million was better than our loss estimate of $12.6 million. The better than expected loss estimate reflected the company’s earlier $85 million annualized cost reductions.

    Not flowing through the upside to full year. Radio advertising trends are improving, but not at the pace we originally expected. We are tweaking lower our Q3 revenue and cash flow estimate in an abundance of caution. We are tweaking lower our Q3 revenue from $196.0 million to $193.0 million and our Q3 cash flow estimate from …



    Click to get the full report.

This research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report.  NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Townsquare Media Inc (TSQ) – Reaffirms Its Favorable Digital Revenue Outlook

Tuesday, August 11, 2020

Townsquare Media Inc (TSQ)

Reaffirms Its Favorable Digital Revenue Outlook

Townsquare Media Inc is an entertainment and media company offering digital marketing solutions in the United States and Canada. It owns and operates radio stations, social media properties focusing the small and mid-cap companies. Services offered to the clients include live events, local advertising, digital advertising, e-commerce offerings, few others. The segments through which the company operates its businesses are classified into Local marketing solutions and Entertainment segments. Revenues are generated from commercials through broadcasts and sale of internet based advertisements.

Michael Kupinski, DOR, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

    Solid Digital performance. Both revenues and cash flow were above expectations for what was one of the its most difficult quarters in its history given the Covid pandemic. Revenues declined 34.5% to $74.05 million, which was better than our $69.95 million estimate, and better than its peers, with many reporting revenue declines of as much as 60%. Q2 operating cash flow, as measured by adjusted EBITDA, was better than expected as well, $2.08 million versus our $1.10 million estimate.

    Why we view the filing favorably.  Its subscription, digital marketing services business, Townsquare Interactive, increased revenues a strong 10.5% in Q2, demonstrating its recession resistant qualities. Both its Townsquare Interactive and its programmatic business, Ignite, are expected to …



    Click to get the full report

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision.