Seven West Media Ltd (ASX: SWM) served up positive half-year (HY21) results this morning, with the share price finishing 6.4% higher. Can the Seven West Media share price continue its impressive run?
Seven West Media is one of Australia’s prominent media companies. It now focuses purely on free-to-air TV broadcasting and newspaper publishing.
The group sold its radio broadcasting and magazine publishing arms on 31 December 2019 and 1 May 2020 respectively.
HY21 highlights
Seven West Media generates most of its revenue from advertising, representing 81% of total revenue for HY21. Seven West Media reported a fall of 9.9% in total revenue compared to the prior corresponding period, HY20 (PCP). This is mainly attributed to an $18 million drop in advertising revenue and a 50% fall in program sales revenue. This makes sense as most businesses would have cut down on their advertising spending due to COVID-19.
Despite the decline in revenue, Seven West Media recorded a major improvement in operating expenses, which fell by 18% to $480 million relative to the PCP.
Seven West Media notes the improved operating efficiency is a result of cost initiatives implemented in FY20, as well as temporary cost savings brought on by COVID-19.
As a result of the boost in costs reduction, Seven West Media reported underlying EBITDA of $165.7 million, an increase of 24.4% versus the PCP.
Management commentary
Seven West Media Managing Director and Cheif Executive Officer, James Warburton said, “The market is showing positive signs of recovery with strong growth in the second quarter and forward bookings are looking positive for the third quarter. Our digital transformation can be seen in the success of 7plus, which has had a phenomenal year. Its revenue was up 79 per cent in the period versus market growth of 44 per cent. Seven’s total digital EBIT grew 168 per cent to $32 million in the period. These strong operating performances have been delivered after a radical transformation of the cost base. The c$170 million gross cost out remains on track and we have identified another $30 million of cash savings.”
Despite a challenging advertising environment, management has been able to achieve cost efficiencies, which I think will continue with its focus on the digital media arm.
Google partnership
Seven West Media also announced it has entered into a long-term partnership with Google (NASDAQ: GOOGL) to provide news content to the Google Showcase product, which launched in Australia in early February.
This is a significant milestone for Seven West Media and represents another avenue for it to reach a greater audience.
My outlook
I like how the management team has divested its radio broadcasting and magazine publishing business streams and are focused on its key revenue drivers. It appears management has recognised the limited growth potential in these business streams and are looking to deploy capital towards capitalising on the long-term tailwinds within the digital media space.
There is a lot to like about Seven West Media at the moment but it’s also competing with another heavyweight, Nine Entertainment Co Holdings Ltd (ASX: NEC).
In saying that, I think there are still ample opportunities for both companies to achieve cost efficiencies in digital media, but the key revenue driver will be advertising. The outcome of the media bargaining tussle between the government and Google and Facebook (NASDAQ: FB) could very well push the Seven West Media share price north.
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