2023-03-21 08:11:36 ET
Summary
- Nexstar Media Group has continued to see strong growth in Political Advertising revenue, but that of Core Advertising and Distribution have not seen growth in the last quarter.
- Investors are likely going to pay more attention as to whether these revenue streams can see a recovery.
- I view NXST stock as a "wait and see" at this time.
Investment Thesis: I take the view that investors will want to see more evidence of a rebound in Core Advertising and Distribution revenues before the stock rebounds meaningfully from here.
In a previous article back in November, I made the argument that Nexstar Media Group ( NXST ) could see further upside from here - on the basis of continued strength in Distribution revenue as well as broadly strong growth in revenues and earnings.
However, the stock is down by almost 15% since my last article:
The purpose of this article is to investigate why the stock has seen such a decline, and whether Nexstar Media Group has the potential to rebound from here.
Performance
When looking at performance for Q4 2022 , we can see that while the Political Advertising segment saw strong growth in revenue on a percentage basis - that of Core Advertising saw a decline while Distribution revenue saw no growth on a quarterly basis:
I had previously made the argument that while Core Advertising revenues had been seeing a decline - that of Distribution had continued to show growth (which accounts for the largest revenue segment of Nexstar Media Group).
However, performance this quarter saw no revenue growth across the Distribution segment. The company cited subscriber attrition among multichannel video programming distributors as well as new distribution agreements that had temporarily led to the removal of Nexstar and partner stations from certain distributors throughout the course of the quarter.
While this slowdown in growth may be temporary for the above reasons - I take the view that investors will be watching closely as to whether the Distribution segment can continue to see revenue growth once again. The growth in Political Advertising revenue over the quarter can largely be attributed to broadcasting of the U.S. midterm elections late last year - 2023 is set to be relatively quieter from an election standpoint and thus Nexstar cannot simply rely on Political Advertising revenue to make up for the revenue shortfall across other segments.
From a balance sheet standpoint, Nexstar Media Group was able to utilize cash from operations to reduce overall debt by $477.6 million, while bolstering unrestricted cash to $204.1 million.
While this is encouraging - there is a limit to the degree to which Nexstar Media Group can continue to reduce debt if overall revenue growth remains stagnant.
Moreover, diluted earnings per share for the quarter was down to $5.30 from that of $6.19 in the same quarter of the previous year.
In this regard, this illustrates that the company cannot simply rely on growth in Political Advertising revenue if revenue across other segments is declining.
Risks and Looking Forward
Going forward, I take the view that investors will watch revenue performance across Core Advertising and Distribution more closely to see if there is potential for recovery.
Indeed, with 2023 set to be a quiet year on the election front - these revenue streams will become more important in determining whether revenue growth can continue overall. While revenue growth for the quarter was technically strong at 19.3%, this could be set to fall significantly if other segments do not see a recovery going forward.
On the flip side, Nexstar Media Group has still managed to renew its distribution contracts with over half of its subscriber base. With these contracts set to come to fruition this year, distribution revenue could see an uptick in growth. Additionally, it is also expected that additional distribution contract renewals will be affected heading into 2024 as the U.S. Presidential Election approaches.
From this standpoint, Nexstar Media Group does have significant scope to bolster its Distribution revenue once again.
Conclusion
To conclude, Nexstar Media Group has seen a decline in significant part due to lack of growth in Core Advertising and Distribution. While these revenue segments have potential to rebound from here, I take the view that investors will want to see more evidence of this being the case before the stock rebounds meaningfully from here.
For further details see:
Nexstar Media Group: Pressure On Revenue Growth Could Increase