The results release by NZME for the HY2017 was rather disappointing. A combination of the overall weak advertising market and poor execution were factors that contributed to this result. There were some positive things that came out of the presentation and earnings call. I’ll summarise the key pluses and minuses below:
- Digital revenue grew by 20% pcp. This is evidence that the new NZ Herald layout from using the Washington Post software has been well received by online readers.
- New investments in Grabone, Driven, Restauranthub and Ratebroker are forecast to increase ecommerce revenue moving forward. I see these websites as businesses that can easily benefit from NZME’s reach in New Zealand.
- Radio surveys for the 18-54 age bracket were up in the first two surveys in 2017.
- Overheads were down 4% pcp.
- The biggest disappointment was drop in revenue and earnings for the radio division. This was disappointing given radio was down last year. Traditionally, NZME agency sales were made via TRB, a joint venture with Mediaworks. Mediaworks withdrew from this JV in 1HY2016 disrupting agency revenue and NZME subsequently developed an internal agency sales team in FY2016. On the earnings call, management said that radio sales have been extended to 100% of their sales force. This initiative coupled with the improvements in ratings should hopefully stem the fall in revenue.
- E-commerce (Grabone) revenue continued to fall.
I didn’t see the fall in print revenue as a negative as this was expected by the market and it actually did a lot better than the overall market. NZME reported that their revenue was down 5% but the market was down by 11%. On the earnings call, management said that their circulation revenue was made up of 70% home delivery and 30% retail and they had different price packages for various subscribers. One positive about having a subscriber base is that you can price discriminate the customers and offer a discount to hang on to customers who call-in to terminate the subscription.
Although results were disappointing, I’m still excited about NZME’s audience reach and the potential to monetize this through a paywall and by supporting adjacent websites like Driven, Ratebroker and Restauranthub.