Michael Kupinski

It won’t quite be the worst-to-first ratings ascension of a hot new station, but a different set of numbers – those focused on revenue – may be an even bigger eye-popper in 2021. Noble Capital Markets says after having among the weakest performances of any media in 2020, radio has a lot to look forward to in 2021. “Radio may have one of the best revenue recoveries in the media space,” said analyst Michael Kupinski in his outlook for the year.

The optimistic forecast is based on what Kupinski said was a “substantial” improvement in revenue trends during the fourth quarter. He saw a “sizable boost” from political advertising as the average radio group posted revenue declines of roughly 12%. That may still be a negative number, but it is roughly half the size of the average 22% revenue decline of the third quarter.

“Broadcasters that have digital, podcasting, and diversified operations, likely will perform better than the industry averages,” said Kupinski. “Digital, which for many radio broadcasters includes podcasting, appears to be growing revenues in the double digits.”

Television stations have long ridden a seesaw of political spending. One year they are up, the next down. But Kupinski thinks that even though election advertising propped radio last quarter it is unlikely to be a drag in the new year. That is because, by his estimate, it accounted for only four percent of industry revenue in 2020. “While this is up from roughly three percent in the past, it is not too large to overcome given the prospects of a rebound in advertising,” he said.

Growth Yes, But Double Or Single Digits?

In an update to clients, Noble Capital Markets said the consensus growth estimate for radio this year is 13.5%. Kupinski said he may be bullish on a rebound, but that is higher than he expects. Kupinski forecasts radio revenue will increase 7.3% this year. “Either way, radio revenue trends appear favorable,” he said.

But managers, executives and owners may burn through more than a few bottles of antacid. Not only does the pandemic bring historic levels of uncertainty to the business climate, but Kupinski also thinks there will be a “lumpy” pace of revenue gains. That is mostly driven by year-to-year comparisons. Second quarter will bring what he calls the “mother of all easy comparisons” when billings go up against last year’s Q2 when revenues plunged 55% to 65% across the industry. Other quarters will not be so easy.

The turnaround cannot come quick enough. As Alpha Media demonstrated this week, soft ad sales can lead to complications between broadcasters and lenders. Cash flow is expected to be up more than 20% for most companies this year, said Kupinski, calling it “welcome relief” to many groups with “stretched” balance sheets. He credited a combination of concessions from lenders on debt covenants and government PPP loans with helping some groups weather 2020. And he also noted that during the past decade many groups have learned how to operate with high debt loads.

Kupinski is not alone in his assessment. Noble Capital calculates radio stocks were up 34% during the fourth quarter. The larger radio groups did even better, including Cumulus Media (+63%), iHeartMedia (+58%) and Entercom (+52%). Media stocks overall were up 40% during fourth quarter but mostly finished the year down.

“As we look forward toward 2021, radio stocks appear to offer the best value and the most upside appreciation potential, assuming a continued advertising recovery,” said Kupinski. “But this industry is not without risks. Many of the radio companies have heavy debt burdens, which may be tricky if the advertising recovery does not continue.”

Reasons To Remain Cautious

The past year has brought significant changes in media habits, as demonstrated by the rapid growth of connected TV, and in consumer habits, illustrated by the pile of delivery boxes on the front steps. That retail shakeup is likely to have a bigger impact on radio. Yet there could also be less competition in some cases, especially from print as Noble Capital questions whether there may be fewer publishers in the year ahead.

Kupinski told clients that a lot of what happens this year will depend on the vaccine distribution, which he thinks will kick-start the beginnings of an economic recovery. “We caution investors not to get over their skis on optimism,” he said. “The general economy is still reeling from store and restaurant closures and other restrictions. While a vaccine offers hope that there will be a return to ‘normalcy,’ we remain cautious about the issues that will need to be addressed post pandemic.”