Marsh sees still lower radio stocks
"While radio stocks bump around near 52-week lows, we still see downside for the average radio stock from here, especially as we near 2006," was the dire warning from S.G. Cowen analyst James Marsh in his latest missive to investors. And he's not just a short-term bear. Marsh sees radio revenue growth in the 2-3% range over the next five years - - a far cry from a return to the historical 7-8% range that broadcasters hope to get back to after crawling out of this prolonged ad recession.
Marsh sees a number of factors holding back radio stocks and the radio business over the next couple of years. For one thing, he's predicting that Clear Channel's "Less is More" initiative will fail. "While we think Clear Channel has the right idea in lowering commercial loads, we don't think the ad market is robust enough to offset the lost units with higher rates. It should be clear by midyear 2005 that there is no magical way to reduce spot loads and maintain revenue growth rates," Marsh said.
The analyst thinks the impact of new technological threats to radio is greater than currently reflected in broadcasters' stock prices. He seeks XM and Sirius having 13 million satellite radio subscribers by the end of 2006, with both the satellite guys and iPod-type devices taking significant listening shares away from terrestrial radio in coming years. In fact, he projects that those two competitors will have taken away 30% of terrestrial radio's audience by 2015.
Radio listenership trends
|
Medium
|
2001
|
2005
|
2010
|
2015
|
|
Terrestrial radio
|
100%
|
97%
|
87%
|
69%
|
|
Satellite radio
|
0%
|
3%
|
11%
|
26%
|
|
MP3 (iPod & etc.)
|
0%
|
0%
|
2%
|
4%
|
Source: SG Cowen & Co.
In addition, Marsh sees radio stocks going lower because his fellow Wall Street analysts will cut their growth forecasts, which he regards as too high. With radio stock multiples currently around 12.5 times, he sees them going to 11 times or lower. He's cut his target prices for the seven radio stocks he covers by 19.9-39.7%, putting his target price for all but Radio One below their current trading levels.
RBR observation:
Could it happen? You bet. It's because radio has been turned into a commodity and left itself open to attack. It's not going to be easy or cheap to get radio programming, management, sales and marketing back on track - - but it has to be done.
Are you reading this from a forwarded email?
