Wells Fargo Securities - NAB

The cancellation of the NAB Show didn’t stop Wells Fargo from hosting a “Virtual NAB” this week with David Field from Audacy and iHeartMedia’s Rich Bressler participating, along with TV execs from Fox Corp., Nexstar Media Group, Sinclair Broadcast Group and E.W. Scripps Co.

While the sessions were closed to the press, Wells Fargo media analyst Steven Cahall summarized some of the takeaways in a research note to clients.

With football season in full swing and sportsbooks competing fiercely for customers, sports betting is a red hot category. “Barely a convo went by without sports betting coming up,” Cahall says in the research note. “It's a top 3 category for most, or will likely be soon.” Still, investors may question whether the category has legs or if the deluge of ad dollars is just “the initial land grab before the competitive field settles down,” Cahall notes.

Automotive remains challenged due to inventory shortages. While the crucial category continues to track below pre-pandemic levels, Cahall sees a turnaround up around the bend. “This likely flips from headwind to tailwind in '22,” he predicts.

Echoing a trend articulated by Entravision at a recent investor conference, national dollars are outpacing local business, which is slower to return, especially at radio.

Naturally, all eyes are on what is expected to be a very lucrative year ahead for political advertising. Wells Fargo’s political ad experts predict 2022 could be just slightly below 2020 – despite lacking a presidential election. Two spending forecasts for the 2022 election cycle, from Kantar/Campaign Media Analysis Group (CMAG) and AdImpact, estimate midterm election ad revenue at either $7.8 billion or $8.9 billion. Either projection would far surpass 2018's midterm spend of over $5 billion while approaching the nearly $9 billion generated by the 2020 Presidential election year ad spend.

Another takeaway from Virtual NAB: more consolidation is ahead for both broadcast TV and radio. “Our FCC expert thinks station consolidation can continue, with deals being scoped to meet the regulator's requirements,” Cahall says. “We think all companies are considering gradual pivots toward digital, OTA, and OTT, and these will be the primary sources of deal activity.”

With TV and radio stocks trading at a seven-times earnings multiple, down from eight-times pre-pandemic, Cahall says the sector remains attractive – especially as the advertising recovery continues. “We think there are still a few legs left to the recovery, and hence, this space still looks attractive for value investors.”