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Evolution of Media Companies in the Era of Millennials

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The Zacks Media Conglomerates industry is facing a tough time with a decline in broadcast television ratings and a downturn in home entertainment sales. The increased inflation and interest rates have also made advertisers hesitant to spend. Nevertheless, companies have been striving to pivot toward over-the-top (OTT) content, aiming to capture the attention of younger generations, like Gen Z and millennials. Among these key players are Pearson, Sphere Entertainment, and Sinclair. They have been pouring resources into the creation of fresh and original content, including music and shows, and offering alternative packages, such as skinny bundles, to entice consumers at lower costs compared to traditional offerings.

Industry Overview

The Zacks Media Conglomerates industry primarily includes companies that produce and distribute shows, movies, music, and digital learning services. Despite the challenges, media companies are embracing the shift in consumer preference for OTT content and exploring opportunities in the metaverse. As media companies experience pressure from declining television ratings and increased cord-cutting, they are also tapping into new revenue streams by providing original content and subscription-based services, altering their traditional business models.

3 Influential Trends in the Media Industry

Original Content Driving Growth: Media companies are expanding their revenue streams by delivering ad placements on digital platforms and focusing on original content to attract subscribers.

High-Speed Internet Demand Driving Growth: The growing demand for high-speed Internet, including broadband, is fueling the consumption of high-quality videos and binge-watching trends.

Cord-Cutting and Maturing PayTV Industry Presenting Challenges: The traditional media television industry is struggling to cope with the surge of streaming service providers and the declining profitability of residential video services.

Zacks Industry Rank Indicates Challenges

The Zacks Media Conglomerates industry is currently ranked #186, positioning it in the bottom 26% of Zacks industries. This suggests a bleak outlook for the near future, as reflected by the industry’s negative earnings estimate revisions and the downtrend of 25.3% in the earnings estimate for 2023 since December 31, 2022.

The industry has lagged behind the broader Consumer Discretionary sector and the S&P 500 composite in the past year, declining 0.6% while the sector grew 16.2% and the S&P 500 returned 25.1%.

One-Year Price Performance

1yearperf 20231227(1)

Current Valuation of the Industry

The industry is currently trading at 0.91X of the trailing 12-month P/S, while the S&P 500 stands at 3.99X and the sector at 1.88X. This change reflects the industry’s growth potential fueled by the demand for high-quality video content and original programming.

Despite the challenges, companies like Pearson are adapting to the changes in the industry, focusing on the creation of original and appealing content to attract and retain subscribers. Pearson’s stock currently holds a Zacks Rank #3 (Hold) and it stands poised to meet the changing educational, training, and assessment needs.

Trailing 12-Month Price-to-Sales (P/S) Ratio

1yearval 20231227

Key Media Stocks to Keep an Eye On

Pearson: Despite the industry’s challenges, Pearson has maintained a steady Zacks Consensus Estimate for its 2023 earnings, projecting the company’s strength in adapting to the digital, skill-based economy by venturing into virtual learning, workforce skills, and various educational areas.

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