Traditional TV Decline And Escalating Costs Will Crush Margins

Key Takeaways

• Over-reliance on traditional TV advertising and slow digital income growth exposes the company to declining viewership and revenue risks.
  
• Rising content costs and competition from global streaming platforms threaten profitability and deepen challenges in audience and market share retention.
  
• Atresmedia's leadership in audiences, digital growth, content investments, cost control, and strategic acquisitions drives resilient performance and diversified revenue beyond traditional TV.

Catalysts

An audiovisual company, engages in the television, radio, digital and multimedia development, cinema, and events organization businesses in Spain and internationally.

• The company's reliance on traditional TV advertising remains a structural vulnerability, as ad revenue from audiovisual content dropped by over 5 percent year-on-year and the continued migration of advertising spend toward global digital platforms is expected to intensify, threatening long-term topline growth.
  
• Linear television viewership is in persistent decline among younger demographics, and Atresmedia's relatively modest pace in building meaningful digital or subscription-based income streams puts both revenue and net earnings at risk amidst audience fragmentation.
  
• High fixed costs associated with broadcast infrastructure and talent may quickly become burdensome as linear ad revenues erode, with even small negative swings in audience share or pricing power leading to severe margin compression and declining net profit.
  
• Proliferation of global streaming giants such as Netflix, Amazon, and Disney continues to divert both viewers and advertising budgets away from national media groups; Atresplayer's subscriber base, while growing, remains dwarfed by these competitors, potentially resulting in further market share loss and reduced content monetization opportunities.
  
• Anticipated increases in content acquisition and production costs, driven by intensifying competition for Spanish-language rights from international players, will likely erode profit margins and exacerbate earnings volatility, particularly if Atresmedia fails to scale its digital initiatives at a pace that offsets these headwinds.

Atresmedia Corporación de Medios de Comunicación Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Atresmedia Corporación de Medios de Comunicación compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Atresmedia Corporación de Medios de Comunicación's revenue will grow by 4.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 12.8% today to 10.9% in 3 years time.
• The bearish analysts expect earnings to reach €112.8 million (and earnings per share of €0.51) by about July 2028, down from €115.1 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 10.7x on those 2028 earnings, up from 9.8x today. This future PE is lower than the current PE for the GB Media industry at 18.7x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.66%, as per the Simply Wall St company report.

Atresmedia Corporación de Medios de Comunicación Future Earnings Per Share Growth

Risks

• Atresmedia has cemented its leadership in TV and digital audiences, with Antena 3 and La Sexta holding top market positions and its digital platforms ranking high in national reach, which helps sustain robust advertising revenues and overall topline growth.
  
• The company's digital transformation efforts are paying off, with Atresplayer surpassing 700,000 paying subscribers and substantial hours of video watched, supporting the expansion of diversified digital and subscription-based income streams and reducing dependency on traditional TV revenue.
  
• Atresmedia's proactive approach to content production and distribution, including investments in production companies and international syndication, strengthens its intellectual property portfolio and increases opportunities for margin expansion and steady licensing revenue in the long term.
  
• The company has demonstrated consistent operating efficiency, managing to keep operating expenses nearly flat despite inflationary pressures, which supports stable or growing net margins and reinforces earnings resilience even in challenging markets.
  
• Recent and ongoing M&A activity, including acquisitions in event management and digital native media (such as Last Lap and Ac2ality), enables further diversification, opens up new revenue channels and markets, and reduces vulnerability to secular declines in traditional broadcast advertising, helping to underpin consolidated revenue growth.

Valuation

• The assumed bearish price target for Atresmedia Corporación de Medios de Comunicación is €4.3, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Atresmedia Corporación de Medios de Comunicación'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 €6.3, and the most bearish reporting a price target of just €4.3.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.0 billion, earnings will come to €112.8 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of €5.02, the bearish analyst price target of €4.3 is 16.7% 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.