Global Digital Giants Will Undercut Revenue As High AFL Costs Limit Margins Despite Digital Strides

Key Takeaways

• Intensifying competition from global digital platforms and audience shifts away from traditional TV threaten core revenue, pricing power, and long-term broadcast advertising pools.
  
• High sports content costs, digital execution lag, and constrained financial flexibility pose significant risks to earnings growth, innovation, and future shareholder returns.
  
• Investments in digital platforms, data-driven advertising, premium sports rights, and cost efficiency position Seven West Media for long-term digital growth and cyclical recovery benefits.

Catalysts

Engages in the free to air television broadcasting and digital streaming in Australia and internationally.

• As global digital advertising giants such as Google, Meta, and YouTube continue to capture an outsized share of advertising spend compared to traditional broadcasters, Seven West Media's competitive position is likely to erode further, resulting in sustained pressure on core revenue growth and diminished pricing power even as local digital audience numbers climb.
  
• The ongoing structural migration of audiences from free-to-air television to digital streaming and user-generated content platforms is accelerating the decline in traditional TV advertising pools, which is expected to cause a long-term contraction in broadcast revenue and limit the effectiveness of costly sports rights investments for Seven West Media.
  
• Persistent high-cost reliance on premium sports broadcasting rights, like the new AFL contract that has seen a 14 to 15 percent cost uplift this season, is increasing the company's exposure to volatile content costs, threatening margin contraction and creating downside risk to future earnings if digital monetization fails to keep pace.
  
• Despite recent digital investment, Seven West Media's digital transformation lags behind global and agile local competitors, risking further erosion in digital revenue growth and increasing vulnerability to ongoing fragmentation in viewing and advertising behaviors; this is likely to constrain long-term earnings momentum and digital revenue mix improvement.
  
• Elevated net debt levels, coupled with upcoming make-good payments for property exits and normalization of one-off expense reductions, will restrict Seven West Media's ability to invest in innovation or acquisitions, putting further pressure on net margins and the sustainability of shareholder returns in future years.

Seven West Media Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Seven West Media compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Seven West Media's revenue will decrease by 0.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.6% today to 5.1% in 3 years time.
• The bearish analysts expect earnings to reach A$68.7 million (and earnings per share of A$0.04) by about August 2028, up from A$8.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 3.9x on those 2028 earnings, down from 26.2x today. This future PE is lower than the current PE for the AU Media industry at 26.4x.
• Analysts expect the number of shares outstanding to grow by 1.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.21%, as per the Simply Wall St company report.

Seven West Media Future Earnings Per Share Growth

Risks

• The rapid growth and engagement on the 7plus digital platform, combined with strong increases in digital sport audiences (such as Cricket and anticipated AFL rights), positions Seven West Media to benefit from long-term secular shifts toward digital and streaming consumption, creating opportunities to expand digital advertising revenue and lift group earnings over time.
  
• Ongoing investments in advanced data analytics, AI-led audience solutions, and dynamic ad monetization capabilities (including the Phoenix trading system and partnerships like Databricks) enhance the company's ability to serve targeted, high-ROI ads, which aligns with advertiser demand and can raise average CPMs and support margin expansion.
  
• Strategic content rights acquisitions (notably premium Australian sports like AFL and Cricket) have demonstrated the ability to drive material audience gains and improved revenue share, with management expressing confidence that upcoming AFL digital streaming will attract incremental high-value users and new advertisers, providing a tailwind for revenue and potential net profit growth.
  
• Disciplined operational cost management and ongoing efficiency initiatives-including automation, outsourcing, and collaborative industry partnerships-have enabled Seven West Media to hold or reduce costs in the face of inflation, supporting stronger EBITDA margins even in soft advertising environments and potentially leading to improved net margins in future periods.
  
• Early signs of improved TV ad market buoyancy, coupled with upcoming macro tailwinds such as the Australian federal election and improving forward bookings for flagship content, suggest a potential industry cyclical recovery that could translate into stronger-than-expected revenue, cash flow, and earnings for Seven West Media.

Valuation

• The assumed bearish price target for Seven West Media is A$0.13, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Seven West Media's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.3, and the most bearish reporting a price target of just A$0.13.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$1.3 billion, earnings will come to A$68.7 million, and it would be trading on a PE ratio of 3.9x, assuming you use a discount rate of 9.2%.
• Given the current share price of A$0.14, the bearish analyst price target of A$0.13 is 11.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.