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Shares of iHeartMedia closed down 23 percent Wednesday, at $5.56, its lowest closing price since March 2020, after the company forecast continuing pressure in the advertising market.
Analysts from J.P. Morgan, led by Sebastiano Petti, downgraded the stock to underweight from neutral Wednesday and cut their price target to $5 from $10 a day after the company reported fourth-quarter earnings, which included its highest-ever quarterly revenue and adjusted earnings before interest, taxes, depreciation and amortization, but cut its first-quarter revenue and adjusted EBITDA guidance. The lowered guidance shows a continuance of “the uncertain macro environment, difficult comps, and softer brand and national advertising,” Petti wrote.
The J.P. Morgan analysts expect these headwinds to persist throughout 2023, with the lower revenues weighing on the company’s margins due to iHeartMedia’s high operating leverage, with $5.4 billion of debt, as well a shift towards lower margin podcast and digital advertising rather than high-margin broadcast radio revenue.
Wells Fargo analysts, led by Steven Cahall, also cut their price target to $8 from $10, but kept their equal weight rating, given the lowered first-quarter guidance, with the company forecasting adjusted EBITDA at $80 to $90 million compared to the $124 million consensus. This would imply a $50 million year-over-year drop in revenue and a $60 million drop in adjusted EBITDA, according to the analysts.
B. Riley analyst Daniel Day said the lower first-quarter revenue guide suggests “national ad spend has taken another leg down following the initial pullback last summer, partially due to advertisers being conservative with budgets early in the year.” He also noted that podcasting is not immune from the advertising downturn, with the segment seeing 17 percent year-over-year growth compared to the 130% year-over-year growth posted in the fourth-quarter of 2021 (though management noted it was a tough comparison).
“While there may be some choppy quarters ahead, we still expect podcast revenue to show growth in 2023 despite the challenging backdrop, modeling +11% for the full year. We also expect that larger peers such as Spotify and the FANGs will continue to pull back from podcasts after using them as a loss leader for complementary businesses for some time, creating compelling opportunities for IHRT to partner with industry talent,” Day wrote.
The analysts lowered their price target to $16 from $22, but reiterated a buy rating on the stock, given the expectation that the company will still generate free cash flow of more than $200 million in 2023, in a year that sees little political advertising, alongside iHeartMedia’s commitment to cutting costs.
The Guggenheim Securities team, led by analyst Curry Baker, also maintained a buy rating and lowered their price target to $12 from $13, saying their outlook for the next few quarters “continues to reflect headwinds at the core broadcast business.” Still, the analysts see iHeartMedia as well-positioned within the podcast space, given its scale and backend tech stack, which should allow it to outperform the market.
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