SPECIAL REPORT: MEDIA VALUATIONS
UNDER PRESSURE BY KIMBERLY M. RANDOLPH & SAMUEL CALVERT
Despite high hopes in early 2020, radio has been on a downward rollercoaster ride. When will it start to move up? This is the first in a series of stories on the performance of various industry sectors that will run over the next five issues.
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HERE WAS SOME LEVEL OF OPTI-
mism regarding how the radio industry would fare in 2020 as last year drew to a close. After all, there was a relatively healthy economy, a strong core advertising market and expectations of record political spending. This was reflected in the market performance of the radio industry in general. It closely mirrored the S&P 500 Index (S&P) through the first two months of 2020 and hit an index high of 4.9% on Jan. 22. The index was bolstered in large part by Beasley Broadcast Group Inc. (BBGI), which cited a 28.5% year-over-year increase in digital revenue. While BBGI supported the index, its trend reflected a recovery of the stock rather than a market outperformance. BBGI’s share price had steadily decreased in the prior three years. That optimism for the radio industry turned sour quickly in the last part of the first quarter, when the World Health Organization
declared COVID-19 a pandemic. The radio industry’s equity performance was much more significantly impacted by the crisis than the overall S&P. By June 30, radio stocks were down 23.5% from their value on March 11. In comparison the S&P was down 13.1% in the same period. Radio’s equity performance indicates shareholder skepticism regarding the sector’s ability to maintain market share. There are some positive aspects to the business, such as its local presence and ties to individual communities. However, its audience may have shifted to other media choices as a huge segment of the population began working at home rather than commuting to work. In addition, lack of live sports and other local-event-driven activities also have had a negative impact on listener levels. A heavy debt load has increased the pressure, further hampering stocks. Over the past three years, several companies in the radio broadcast industry have made significant
10 The Financial Manager • September/October 2020
strides to de-lever their balance sheets. But the industry remains just under 3.0x more levered than the S&P. Prior to the pandemic, radio stocks averaged a net debt/EBITDA (earnings before interest, taxes, depreciation and amortization) of 5.4x, which is below the five-year historical average of 6.3x. With further weakness expected in the radio advertising market, these multiples are set to increase, bringing them back in line with the historical average. TRANSACTION ACTIVITY As the public market slumped, transaction activity did as well, both in terms of the dollar value of transactions and the number of stations sold. The total dollar value for transactions announced through May was $49.1 million (223 stations) – well below results for the last 10 years, comparing the same five-month period. That’s according to data reported by Kagan, a media research
