Market analysts like prospects for Nine Entertainment despite a challenging economic environment clouding the media group’s visibility ahead on the advertising market.
Management is confident it can manage costs to balance any dip in advertising and analysts see Nine, with its premium content across free-to-air television, radio, publishing, streaming and digital, emerging from any trough in a better position than most.
The media company, like other players, expects the metro free-to-air television market to decline to the mid teens in percentage terms.
Nine reported a 5% rise in revenue to $1.4 billion for the half year to December but net profit after tax fell 16% to $190 million with expenses up almost 10% at $1.119 billion. Costs were higher for broadcasting and for Stan, both of which need constant content feeding.
CEO MIke Sneesby told a briefing of analysts: “Given that we had the uncertainty that we knew was coming into the second half, we kept our deployment of costs a bit behind the revenue curve to ensure that we could hold back costs.
“That has been a program and a strategy around how we manage costs in the business since the start of the financial year. Of course, we do have other cost levers in the event that the market is to turn further.
“We're keeping a very, very close eye on that.
"Having said that … we've continued to reiterate the importance of investment, and genuine investment in important parts of our business.
“And you'll see investment, particularly in content, paying off directly in terms of share in terms of direct revenue, and really starting to reset the market paradigm around how nine is positioned right across our platform.
“So we feel comfortable with making long term investments, the strength of our business certainly supports us doing that. But we're very focused on operating costs and discipline around those costs as we go forward.”
Analysts at investment bank Jefferies approve of Nine's strategy: ‘We like the medium-term setup … comprehensive media assets, strong content lineup, cost discipline, leading market share in TV, and high-quality digital assets (DHG and Stan).
“But, in the short term, the industry outlook for media and housing is challenging, and there is a lack of visibility when things will turn around.”
The analysts say Nine is doing all it can to be the "best media company" in Australia.
“It has invested in content … new season of MAFS, the NRL, Tennis Grand Slam, Olympics 2024-32, (streaming platform) Stan Originals, a strong editorial team, radio talent, and technology,” Jefferies says in a note to clients.
“The competitive environment for Stan is more benign given offshore media companies are paying attention to profitability (eg Disney) and are more willing to do output deals, rather than going direct to consumers.”
“When the ad market recovers, we believe NEC would be in a better position. NEC also remains disciplined with costs. Although the Olympics is a massive deal ($305m cash plus production costs), NEC could distribute the content across its diversified platform.”
Brian Han, equities director at Morningstat issued a note titled: Nine's Boat Remains Buoyant Despite a Falling Tide.
"While the total TV division stole the limelight in the first half, the solid fundamentals of other key divisions are also evident," Han says.
"Stan's active subscribers reached 2.6 million by the end of 2022, up from 2.5 million six months ago, driven by the consistent recent content investment.
"Customer reception has been such that price increases were put through across the entertainment package in July-August 2022 (driving 12% revenue growth in the first half), with a price increase also planned for the sports package in February-March 2023.
"As such, Stan is set to resume earnings growth in fiscal 2023 after an investment-induced hiatus in fiscal 2022."
At UBS, analysts say Nine (NEC) is “executing well” against tougher economic conditions.
“Despite macro challenges ahead, we remain confident that NEC can continue to grow share across its key businesses - TV, radio, Stan,” UBS says in a note to clients.
However, the UBS analysts see the advertising market remaining “highly uncertain”
SMI (Standard Media Index) early numbers for January, not yet released publicly, show a 22% dip for metro free-to-air.
However, the first month of the year, with many executives at media agencies on leave, takes longer to gather all data to plug into SMI.
Reports from the major media players in Australia put February and March bookings running at a healthier pace.
Analysts at Macquarie, highlighting Nine’s share of TV, says the media group’s core business is doing well.
“A highlight from the result was Nine’s TV market share in the half at 39.6% for FTA and 47.1% for 9Now.
“Despite a softer start to the ad/TV markets in January, Nine indicated it achieved >50% market share,” write the analysts in a note to clients.
“This is consistent with industry feedback that Nine’s whole-of-media strategy allows the group to achieve revenue share above its audience share.”
A potential pain point for Nine is advertising dollars from digital, the tipping point from which media players globally have been stripping staff and other costs.
Macquarie analysts: “Unsurprisingly, digital advertising in digital and publishing has declined as the macro backdrop continues to soften.
“We remain cautious on the ability of the digital assets to weather a softer macro backdrop, particularly as digital and publishing subscribers has remained static in the past 6 months.”
However, digital is also part of Nine’s strength, gradually increasing its share of group revenue across its diverse businesses.
In the six months to December, Nine’s publishing division -- metro media business, nine.com.au, Pedestrian and Drive --- reported flat revenue of $300 million.
The growth in digital. A slide from Nine’s briefing to analysts:
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