Digital Audio Expansion And Cost Savings Will Drive Stronger Long Term Earnings Potential

Catalysts

About iHeartMedia

iHeartMedia is a leading audio media company that operates a scaled portfolio of broadcast radio, digital audio, podcasts, events and advertising technology solutions for brand marketers.

What are the underlying business or industry changes driving this perspective?

• Rapid growth in the Digital Audio Group, led by podcast revenue increasing more than 20 percent and non podcast digital up high single digits, is shifting the mix toward higher margin businesses and is expected to continue to expand consolidated EBITDA margins and earnings.
• Expanding programmatic audio distribution across major DSPs, including new partnerships such as Amazon DSP and deeper integration of broadcast inventory, is expected to monetize iHeart’s large audience more efficiently and drive incremental revenue growth with attractive flow through to net margins.
• Growing advertiser adoption of podcasts as a mainstream brand medium, supported by rising listener engagement and increasing spend from large national and local clients, is expected to sustain double digit digital revenue expansion and enhance overall top line resilience.
• Ongoing cost modernization initiatives, including AI enabled workflows and an additional 50 million dollars of annual savings beginning in 2026, are structurally lowering the cost base and are expected to meaningfully improve operating leverage, cash generation and net income.
• Investments in proprietary audience data and cross platform measurement, combined with evidence that adding radio improves campaign performance, are positioned to close the monetization gap between iHeart’s large broadcast audience and digital peers, supporting a potential return to revenue growth in the Multiplatform Group and better consolidated margins.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming iHeartMedia's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -10.4% today to 2.1% in 3 years time.
• Analysts expect earnings to reach $88.7 million (and earnings per share of $0.58) by about December 2028, up from $-399.5 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 11.9x on those 2028 earnings, up from -1.4x today. This future PE is lower than the current PE for the US Media industry at 15.5x.
• Analysts expect the number of shares outstanding to grow by 1.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Secular decline and ongoing underperformance in the Multiplatform Group, where broadcast focused revenue was down 4.6 percent in the quarter and EBITDA margins fell to 20.2 percent, may persist despite sales modernization. This would weigh on consolidated revenue growth and constrain EBITDA expansion.
• High financial leverage, with net debt of approximately 4.7 billion dollars and a net debt to adjusted EBITDA ratio of 6.6 times alongside a GAAP operating loss driven by license impairments, leaves limited room for macro or execution missteps. This could pressure net income and free cash flow if credit conditions tighten.
• Dependence on cyclical and event driven political advertising, which materially lifts revenue and cash flow in election years but leaves year over year comparisons weak in off cycles, could create extended periods of low or negative reported growth. This may pressure valuation multiples and earnings momentum.
• Execution risk in programmatic and data investments, including partnerships with major DSPs and noncash marketing arrangements to grow the audience database, may delay or dilute the expected improvement in monetization of broadcast inventory. This could limit upside to revenue per listener and consolidated margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $4.5 for iHeartMedia 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 $5.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $88.7 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of $3.71, the analyst price target of $4.5 is 17.6% 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.