Digital Media Shift And Cost Discipline Will Secure Enduring Success

Key Takeaways

• Digital expansion, particularly through platforms like OneRoof, is driving revenue growth and improved margins, with further gains expected from continued innovation and market trends.
  
• Cost-saving measures and content diversification enhance profitability and resilience, supporting premium advertising, subscriptions, and reduced dependence on individual market segments.
  
• Reliance on declining print revenue, digital growth challenges, and regulatory risks threaten NZME's long-term profitability and resilience despite ongoing cost-cutting efforts.

Catalysts

Engages in the integrated media and entertainment business in New Zealand.

• The ongoing shift to digital media consumption continues to benefit NZME, with digital revenues (notably from OneRoof and digital audio) growing year-on-year and now accounting for over 40% of total revenues; further gains are expected as digital offerings and app experiences improve and as population growth fuels broader digital audience engagement-positively impacting both revenue and net margins.
  
• NZME is accelerating the growth and expansion of its OneRoof property platform, supported by a dedicated advisory board and new sales structures, achieving 22% annual digital revenue growth and outpacing market listing trends; continued market recovery, product upgrades, and expanded reach are likely to drive further topline revenue growth and operating leverage in coming periods.
  
• Cost discipline and efficiency initiatives, including newsroom restructuring and closure of low-margin community titles, have already delivered significant annualized cost savings (NZ$12 million p.a.), with additional positive margin impact to flow through in H2 2025 and 2026 as recurring operating EBITDA increases and net margins improve.
  
• NZME's strong positioning as a trusted source of local content and brand safety amid rising concerns over misinformation enables it to capture premium advertising and subscription revenue, especially as advertisers and consumers increasingly value reliability and engagement-supporting resilience in both recurring and ad-based revenues.
  
• Expansion and innovation in multi-platform content (audio, video, print, digital), including successful podcast growth and entry into digital video, position NZME to leverage industry shifts in advertising spend and consumer media consumption patterns; this diversification is expected to accelerate earnings growth and reduce vulnerability to single-segment declines.

NZME Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NZME's revenue will decrease by 0.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -5.4% today to 5.8% in 3 years time.
• Analysts expect earnings to reach NZ$20.3 million (and earnings per share of NZ$0.1) by about September 2028, up from NZ$-18.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from -11.9x today. This future PE is lower than the current PE for the AU Media industry at 21.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.57%, as per the Simply Wall St company report.

NZME Future Earnings Per Share Growth

Risks

• Ongoing reliance on print media for both publishing and elements of OneRoof exposes NZME to the secular decline in print circulation and advertising revenues, which could increasingly erode total revenue and net margins as structural industry trends accelerate print's contraction.
  
• Digital-only subscription growth has slowed (noted sequential weakness and yield degradation), which, if persistent, risks capping the monetization potential of digital content and undermining future digital revenue and earnings growth, particularly as competition for paying digital subscribers intensifies.
  
• Weakness in digital publishing advertising revenue (programmatic and core digital) and overall subdued digital market demand indicate NZME may be struggling to defend or increase its share of digital ad spend versus global tech platforms; this could constrain top-line revenue and create long-term earnings pressure.
  
• While aggressive cost reductions have supported EBITDA in the short term, continued downsizing and restructuring risk hitting diminishing returns, especially as fixed costs remain for legacy media operations, limiting further margin improvement and putting long-term earnings resilience at risk if revenue does not recover.
  
• Regulatory uncertainty regarding digital copyright, AI usage, or potential government intervention in digital news revenue sharing (with no current movement but ongoing risk) could increase compliance costs and/or weaken NZME's bargaining position with global platforms, negatively impacting profitability.

Valuation

• The analysts have a consensus price target of NZ$1.175 for NZME based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NZ$347.4 million, earnings will come to NZ$20.3 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 7.6%.
• Given the current share price of NZ$1.16, the analyst price target of NZ$1.18 is 1.3% 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.