11th May 2023 14:57
(Alliance News) - Shares in ITV PLC were sitting at the bottom of the FTSE 250, down 4% in London on Thursday afternoon, after the company reported a decline in first-quarter revenue amid a weaker advertising market in the UK.
Total revenue for the television broadcaster and content producer was down 7% to GBP776 million from GBP834 million a year earlier.
Revenue at production arm ITV Studios was flat on a year before at GBP457 million, while in broadcast arm ITV Media & Entertainment, it fell 9.2% to GBP495 million.
ITV said total advertising revenue fell 10%.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said the double-digit decline in advertising revenue was expected, but noted that this is due to get worse in the new quarter.
"That reflects the very real challenges that come with relying on above-the-line spending during times of economic stagnation," she said.
Russ Mould, investment director at AJ Bell, explained that TV advertising faces both a "structural challenge", as the audience for linear television declines, and a "cyclical challenge" as companies trim their advertising spend due to an uncertain economic outlook.
In the face of such challenges, Richard Hunter, head of markets at interactive investor, said that the ITV Studios business has stepped in to pick up some of this slack, with overall revenues now roughly an even split between Studios and Media & Entertainment.
"The Studios business has had a stream of quality content which it has been able to distribute both within the UK and overseas, and is not limited to the ITV stable as it also makes programmes for other channels," he said.
Further, the ii analyst noted that the launch of the free, ad-funded ITVX streaming service has got off to a "flying start" with 1.5 registrations and 69% growth in streaming hours, according to the company's full-year results.
However, despite the progress being made within ITVX and Studios, Hunter said that investors remain "skittish" on the ITV's prospects.
This, he said, was evidenced by the initial share price reaction to the trading update, which reflected "the broader and more obvious concerns around general advertising revenues".
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, cautioned that despite a "swell in appetite" for ITV Studios, there remains "tricky elements to deal with" in terms of content creation.
"It's a very tough business in which to inflate margins, and is a large reason ITV's operating profit expectations have been dialled back," Lund-Yates said.
Looking ahead, ITV expects at least 5% average organic growth per year to 2026, and to "grow ahead of the market".
The company aims for adjusted earnings before interest, tax, depreciation and amortisation margin for ITV Studios of 13% to 15% over the period to 2026, compared to 12% in 2022.
ITV added that it maintains committed to delivering GBP15 million of cost savings in 2023.
ITV shares were quoted at 74.18 pence on Thursday afternoon in London, down 3.8% on the day and 4.2% in 2023 so far.
By Heather Rydings, Alliance News senior economics reporter
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