Digital Transformation And International Content Will Expand Future Prospects

Key Takeaways

• Acceleration in digital strategy and international content expansion boosts diversified revenue streams, competitive edge, and margin stability beyond traditional UK ad markets.
  
• Disciplined cost controls and effective use of data and digital partnerships support operating leverage, high-margin digital growth, and sustained long-term earnings.
  
• Shifting viewer habits, fierce digital competition, rising content costs, audience fragmentation, and stricter advertising regulations threaten ITV's traditional revenue streams and margin stability.

Catalysts

A vertically integrated production, broadcasting, and streaming company, which creates, owns, and distributes content on various platforms worldwide.

• ITV's ongoing shift to digital, highlighted by rapid growth in ITVX streaming hours (+15%) and digital ad revenues (+12%), positions the company to capture a larger share of the expanding online video advertising market and tap new revenue streams (e.g., SME-focused advertising, digital partnerships like YouTube and Disney+), which should support top-line revenue growth and higher-margin digital earnings over time.
  
• Strategic investments in ITV Studios' international content production-including acquisitions (e.g., Moonage Pictures, Plano a Plano) and expansion into social video, FAST channels, and gaming-have led to double-digit external revenue growth and improved global diversification, increasing the stability and scalability of revenues and protecting margins from cyclical swings in the UK ad market.
  
• Effective use of first-party data and advanced monetization platforms like Planet V enables ITV to offer highly targeted, premium digital advertising at attractive CPMs, making ITV more competitive against digital giants and opening up higher-margin, addressable advertising revenue, which is likely to drive both overall revenues and net margin expansion.
  
• Cost discipline and ongoing structural transformation, including permanent noncontent savings (£45 million in 2025) and the use of AI for operational efficiencies, are reducing the cost base, improving operating leverage, and freeing up capital for reinvestment-laying the foundation for sustained earnings and cash flow growth.
  
• Increased focus on monetizing owned IP through digital channels and global licensing (e.g., Zoo 55, Love Island international formats), alongside regulatory support for local content quotas, enhances ITV's ability to generate high-margin recurring revenues from global content sales, supporting gross margin and long-term earnings growth.

ITV Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ITV's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 6.8% in 3 years time.
• Analysts expect earnings to reach £256.7 million (and earnings per share of £0.06) by about July 2028, up from £186.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £184.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, down from 16.6x today. This future PE is lower than the current PE for the GB Media industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 6.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.24%, as per the Simply Wall St company report.

ITV Future Earnings Per Share Growth

Risks

• The ongoing shift from linear TV to digital and on-demand viewing continues to put structural pressure on ITV's traditional advertising revenues; despite digital initiatives, ITV remains highly exposed to broadcast ad spend declines, particularly as it faces tough competition for younger audiences and mass market advertisers, potentially causing long-term revenue erosion and net margin pressure.
  
• Intense competition from global streaming and digital advertising giants (Google, Meta, Amazon) may limit ITVX and Planet V's ability to scale and sustain higher-margin digital advertising, as global tech platforms increasingly dominate UK and global ad budget allocations, constraining ITV's revenue growth and pricing power.
  
• The Studios division's profitability is subject to volatility from rising international content costs, heightened talent expenses, and potential cyclicality in original commissioning by global streamers; as content inflation persists and rivals aggressively expand, this threatens both margin stability and future earnings growth from Studios.
  
• Audience fragmentation and the proliferation of streaming services may dilute ITV's mass-market appeal over time, reducing its effectiveness and market share as a premium, mass-reach advertising platform, challenging its unique selling proposition and putting core revenue streams at risk.
  
• Increasing regulatory restrictions (e.g., on unhealthy food, gambling, and alcohol advertising) may continue to curtail major categories of advertising revenue, especially within the UK market, adversely impacting total advertising revenue and, ultimately, net income.

Valuation

• The analysts have a consensus price target of £0.854 for ITV based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.12, and the most bearish reporting a price target of just £0.72.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £3.8 billion, earnings will come to £256.7 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of £0.82, the analyst price target of £0.85 is 4.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.