Digital Advertising Shift And Streaming Demand Will Transform Media Markets

Key Takeaways

• Strong digital and studio growth, underpinned by acquisitions, expanding IP, and new content, is expected to drive sustained improvements in margins and cash flow.
  
• Dominance in Scottish platforms, rising digital ad spend, and local production support position STV for outsized, predictable revenue and profit growth.
  
• Increasing digital disruption, global competition, concentrated domestic focus, rising production costs, and regulatory challenges threaten STV's revenue growth, profitability, and long-term adaptability.

Catalysts

Produces and broadcasts television programs in the United Kingdom.

• Analyst consensus suggests Studios revenue will double by 2026 through acquisitions and international growth, but with 21 labels, increasing global commissions from streamers, and an expanding IP library (now exceeding 4,500 hours), Studios could scale well beyond the current targets, driving upside surprises in group revenue and long-term operating margin expansion.
  
• While consensus highlights a 50 percent digital revenue increase by 2026 through STV Player's strong momentum, the rapid growth in high-margin subscriber revenue, record-breaking engagement from new content acquisitions, and seamless integration of new partnerships could accelerate digital revenue far beyond expectations and drive sustained net margin improvements.
  
• STV's unique dual-platform dominance in Scotland and increasing national VOD share positions it to disproportionately benefit as digital advertising spend structurally shifts from traditional TV to data-driven, brand-safe environments, providing substantial upside leverage to net advertising revenues as brands reallocate budgets.
  
• Intensifying demand for regionally authentic, returning content and broad-based regulatory support for local production underpin greater long-term visibility across both Studios and Broadcast, which should result in higher-quality recurring revenues and a structural lift in group earnings predictability.
  
• The recent strategy refresh under a proven digital-focused CEO signals further monetization of STV's unrivaled local engagement and new content delivery models, creating an opportunity for step-change growth in both digital and Studios divisions, and ultimately driving superior medium
• and long-term free cash flow generation.

STV Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on STV Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming STV Group's revenue will grow by 11.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.7% today to 5.9% in 3 years time.
• The bullish analysts expect earnings to reach £15.3 million (and earnings per share of £0.32) by about July 2028, up from £10.8 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 bullish analyst cohort, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from 8.0x today. This future PE is greater than the current PE for the GB Media industry at 12.0x.
• Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.23%, as per the Simply Wall St company report.

STV Group Future Earnings Per Share Growth

Risks

• The persistent long-term shift from traditional linear TV to digital and on-demand viewing could erode STV's core advertising revenues, particularly as linear TV still underpins a significant portion of top-line growth.
  
• Rising competition from global tech giants and digital platforms such as Netflix, Google, and Meta threatens STV's ability to attract and retain premium advertising spend, putting sustained pressure on future revenue streams.
  
• STV's reliance on UK-centric, regionally-focused content and limited international diversification heightens vulnerability to domestic advertising cycles and constrains opportunities for scalable revenue growth outside its home market.
  
• Escalating costs for content production, especially in drama and high-volume entertainment, combined with the need for continual investment in digital platforms, place upward pressure on operating expenses and compress net margins if revenue growth does not keep pace.
  
• Regulatory risks such as new advertising restrictions (like HFSS), changes in public service broadcasting obligations, and potential reductions in government or public sector advertising could structurally depress earnings over time and increase compliance costs.

Valuation

• The assumed bullish price target for STV Group is £3.73, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of STV Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £3.73, and the most bearish reporting a price target of just £2.51.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £258.9 million, earnings will come to £15.3 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 8.2%.
• Given the current share price of £1.9, the bullish analyst price target of £3.73 is 49.1% higher.
• 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.