EntercomStacked

When Entercom CEO David Field and CFO Richard Schmaeling met with investors in April at the NAB Show in Las Vegas, they brought encouraging news from radio’s second largest group: second quarter revenues were pacing up by more than 4%. Unbeknownst to them, business would slow down in May and June and the company would finish Q2 with revenues up only 2.3%. Investors don’t like surprises and, in Wednesday trading, punished the company, sending its stock price down a blistering 36% to close at $3.36. Entercom lost more than one-third of its value in a single day.

Speaking to investors Wednesday morning, the two execs explained what happened. The culprit was a one-two punch of slowing local ad sales and weaker than expected ticket receipts at some of its largest events, due in some part to bad weather. April revenues were up by high single digits but conditions softened in May, which declined by low single digits, before rebounding a bit in June, up low single digits.

In the end, the mid-quarter downturn caused the company to rethink the practice of providing investors with pacing data but not guidance. “That approach has made us vulnerable to deceleration such as what occurred during Q2,” Field said on the company’s quarterly earnings call. “Starting now, we will begin to provide revenue guidance so we can provide better information to our investors by incorporating our market insights rather than just passing along a data point.”

What Lies Ahead

Instead of just offering a single pacing number for third quarter, the company went into more detail about what lies ahead. Comparisons to third quarter 2018 “will be more challenging,” Field cautioned, since Entercom added “significant traffic-related revenue recoveries” one year ago, following the United States Traffic Network debacle. Q3 2018 also included “healthy political spending.” Despite the difficult comps, Field said Entercom is currently pacing up low single digits and expects to finish third quarter that way. “We are continuing to see local sales improving sequentially with national, digital and network revenues each up significantly,” he added. “In fact, our spot radio business overall is having its heathiest quarter in some time.” Still, events and political billings are down in Q3 compared to last year.

Back to Entercom’s Q2 results: Revenues were up 3% minus political. National and local spot revenues were “close to flat,” Schmaeling said, while digital rose 19%. Best performing markets were Denver, Orlando, Philadelphia, Sacramento, St. Louis, Seattle and Washington. While just two of its top-performing clusters were in the top 10 markets, Entercom said the former CBS Radio stations grew faster in the quarter than the legacy Entercom properties.

Strongest ad categories included consumer products, “which continued to surge,” Field said, along with telecom, TV/cable, entertainment, convenience stores, home furnishings, education and ecommerce.

Cost Saving Actions

Entercom has been methodically eliminating positions in numerous markets, including Chicago, Dallas, Philadelphia, Seattle and San Diego. On Wednesday’s earnings call, the company hinted more layoffs could be ahead. The company expects expenses to be down 2% for the full year “as we complete executing our integration program and are also implementing other cost saving actions as we capitalize on new technologies and other best practices while, at the same time, fueling our investments across a number of growth initiatives,” Field explained.

Apart from core ad revenues, Entercom reported progress in other areas where it’s making significant investments. Monthly users for its digital audio Radio.com service surged 82% year over year and digital audio revenues are “growing strongly,” Field said without elaborating further. While Entercom remains “a very small participant” in the exploding digital audio arena, Field told investors the company is “well positioned to become a more meaningful player” in the $3 billion market.

Digital Audio Investments

To that end, the company used earnings day to signal that it intends to make podcasts a bigger part of Radio.com. Before commencing the quarterly call with investors, Entercom made back-to-back announcements: It will acquire Pineapple Street Media for $18 million and buy the 55% of Cadence 13 it didn’t already own. And Radio.com will launch its Sports Digital Network later this month with a mix of daily live sports talk programming and more than 75 hours of original podcast content weekly.

Field also reported progress from the company’s National Client Partnership Team in forging stronger relationships with the country’s biggest advertisers. While “more and more advertisers are recognizing that they are under invested in radio” and are open to rethinking their media mix to increase radio spending, these blue chip companies plan their media far in advance and changing perceptions takes time, Field warned. So these efforts aren’t likely to become a major growth driver until 2020 and beyond.

In his closing remarks, Field made the case that audio is in the midst of “an emerging renaissance” and that Entercom is ideally situated to participate in that opportunity. In light of that he’s miffed at where its stock has been trading. “Obviously we don’t control that,” he said. “But for whatever it is worth, we see our stock valuation as a complete disconnect from where we see the business and the strength of our platform and assets and capabilities, and the opportunities for growth and value creation that we believe lie in front of us.” – Paul Heine