2023-11-22 06:56:07 ET
Summary
- Nexstar Media Group has seen downward pressure on Distribution Revenues.
- However, given the reinstatement of stations following contract negotiations, I take the view that revenue across this segment can rise once again.
- Television Advertising revenues are also set to see growth with the U.S. Presidential Elections coming up in 2024.
Investment Thesis: I take the view that Nexstar Media Group has the capacity for upside going forward, on the basis of anticipated growth in Television Advertising and Distribution revenues.
In a previous article back in August, I made the argument that Nexstar Media Group (NXST) to continue to see upside from here, owing to continued Distribution Revenue growth as well as an anticipated recovery in Core and Political Advertising Revenue.
Since then, the stock has descended slightly to a price of $150.04 at the time of writing:
The purpose of this article is to assess whether Nexstar Media Group has the ability to see continued growth from here taking recent performance into consideration.
Performance
When looking at the most recent earnings results for Nexstar Media Group, we can see that net revenue was down by 10.8% YoY, on the basis of a strong seasonal drop in Political Advertising Revenue, along with a 6.7% drop in Distribution Revenue.
Nexstar Media Group: Q3 2023 Earnings Release
Moreover, we also see that Nexstar Media Group also saw a significant drop in net income over the same period - and this was due to lower income from operations as well as the absence of a gain on bargain purchase from Q3 2022 as well as lower net income from equity method investments.
Nexstar Media Group: Q3 2023 Earnings Release
In addition, we can also see that Distribution Revenue has fallen from that of the previous year quarter - after having seen growth in Q1 and Q2.
Figures sourced from historical Nexstar Media Group quarterly reports (Q1 2020 to the present). Heatmap generated by author using Python's seaborn library.
Reasons for this include a 76-day temporary removal of stations on a large MVPD (multichannel video programming distributor) during the quarter as a result of contract negotiations, as well as other negotiations also resulting in the removal of partner stations from certain MVPDs and continued MVPD subscriber attrition.
I had previously put forward the argument that growth in Distribution Revenue had been particularly important for Nexstar, as this allowed for a buffer against the decline that we had been seeing across the Core Advertising and Political Advertising segments.
The decline across the latter has been expected - as 2023 has been a relatively quiet year with little election activity across the United States. However, as the country gears up for the Presidential Elections in 2024 - we can expect a substantial rebound in growth across Political Advertising.
With that being said, we see that Distribution Revenue has still accounted for just over 52% of total revenue in Q3 2023. In this regard, my view is that this segment still needs to show growth for further growth in revenue overall - even if the Political Advertising segment stands to benefit from strong growth on the back of U.S. elections next year.
My Perspective and Looking Forward
As regards my take on the above results and the implications for the growth trajectory of the stock going forward, I take the view that Nexstar Media Group needs to see a rebound in Distribution Revenue to justify further upside from here.
In this regard, I would expect that following the temporary removal of stations from MVPDs due to contract negotiations - the next quarter would show an uptick in distribution revenue once again as stations are reinstated. However, if we continue to see a drop in Distribution Revenue from that of the prior year quarter, then this could be a cause for concern in my view.
However, looking ahead to next year - we can expect to see a significant rise in both Core and Political Advertising Revenue given the upcoming Presidential Elections.
Nexstar Media Group: Third Quarter 2020 Results
When looking at Q3 2020 financial results , we can see that Core Advertising Revenue saw over 30% growth from that of the prior year quarter, while Political Advertising Revenue saw 1114.7% growth from that of the prior year quarter.
More broadly, we saw that Total Television Advertising Revenue was up by over 70% from that of the prior year quarter. In this regard, anticipated growth in Television Advertising in the coming year should help to mitigate the drop in growth that we have seen across Distribution Revenue. Moreover, if we do indeed see a rebound in growth across this segment following the reinstatement of stations - then this could mean significant growth for the stock if growth across both Television Advertising Revenue and Distribution Revenue proves to be vibrant.
That said, we can also see that given the significant drop in earnings that we have seen this year - the same also needs to see a rebound in growth alongside revenue to justify further upside.
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However, given the strong growth that we saw in earnings in 2020 on the back of an election year - I am optimistic that Nexstar Media Group can bolster earnings once again and we could see the stock breach the $200 level to the upside - a level that the stock achieved near the beginning of this year.
Risks
In terms of the potential risks to Nexstar Media Group at this time, the main one in my view is the risk that Distribution Revenue remains low going forward.
Even with an anticipated rise in Television Advertising Revenue next year - a continued boom in streaming is placing further downward pressure on TV advertising - and this trend could continue into next year.
As a result, we could see a situation where revenue growth is still less than expected, which could be a risk factor for the stock.
Conclusion
To conclude, Nexstar Media Group has seen pressure on revenue growth of late. However, in spite of industry risks - I take the view that the stock is set to see a significant rebound in revenue across both Television Advertising and Distribution revenues. For this reason, I continue to take a bullish view on the stock.
For further details see:
Nexstar Media Group: Anticipated Growth In Television Advertising And Distribution Revenues