Summary
- iHeartMedia remains a beaten-up media play still hurt by the COVID-19 hit on ad revenues.
- The company is cutting costs in order to push margins above pre-virus levels.
- The stock trades just slightly above 1x EBITDA targets.
- Looking for more investing ideas like this one? Get them exclusively at Out Fox The Street. Get started today »
As Spotify Technology (SPOT) surges this year based on excitement around new podcasts, the market appears to ignore some deep value in the actual podcast leader, iHeartMedia (IHRT). The media company leads in podcast streams and has seen those related revenues surge despite hits to traditional broadcast radio revenues. The company is heavily in debt, but a strong cash flow profile makes the stock a deep value here.
Image Source: iHeartMedia website
Digital Push
The media enterprise has shown a big push into digital during the last few years evident in the quarterly results. Unfortunately, revenues were still too focused on traditional broadcast revenues and even digital that was hit by the pause in the ad markets. Even Facebook (NASDAQ:FB) saw U.S. ad revenues collapse 10% during Q2 while radio revenues as a whole were down 42%.
Based on these following statements by CEO Bob Pittman on the Q2 earnings call, iHeartMedia is positioned to benefit from higher audiences in the future as ad revenues normalize:
...digital is up 2.4%, driven by podcasting, which is up over 100%...From a consumer engagement perspective, since the pandemic began, listening on the web is up 19%; gaming consoles up 25%; and smart TV are up 13%. Even in July, as things showed signs of returning closer to normal, digital listening on home devices is still up.
The podcast business remains a prime focus on the new digital wave at iHeartMedia, but the media empire is moving beyond traditional AM/FM radio with the ability for listeners to utilize modern devices such as gaming consoles and smart TVs. For these reasons, ad revenues were only down 27% in July.
The company remains in strong contention with NPR for the top podcast network. In August, iHeartRadio had the most global podcast downloads and streams at 234 million. The company plans to add high-profile podcasts such as Bill Clinton to further expand its market leadership in the segment.
