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Coverage Initiation: Entravision Communication Corporation
Value Line has initiated coverage of Entravision Communication Corporation (EVC) in its flagship product, The Value Line Investment Survey. The company, with its subsidiaries, operates as a diversified Spanish-language media company. As of the last fully reported year, it owned 56 television stations and 49 radio stations, primarily in markets with high concentrations of Spanish speakers.
Founded nearly twenty years ago and based in Southern California, Entravision derives roughly 85% of its revenue from local and national television advertising. The company’s radio division makes up the remainder of revenues. Its relationship with Univisíon and UniMás augurs well for the company’s future. Owning exclusive broadcasting rights to these Spanish-language networks in substantially all of its markets, the company exists as a premier distributor to millions of Hispanic households in heavily populated regions. The deals run through 2021 and provide the company with a healthy amount of exposure in crucial markets. Furthermore, the company broadcasts Telemundo in the Sand Diego/Tijuana metropolitan area.
However, it should be noted that under the tenets of these deals, Univisíon possesses sole rights to negotiate the terms of retransmission agreements over the duration of the contract. The next important date is December 31, 2014, when the initial six-year retransmission fee expires. Over the past several years, investors have witnessed increasingly contentious public fallouts over retransmission fees between cable companies and broadcasters. Unfortunately for Entravision, the majority of these deals concluded with the balance of power firmly tilted in the content provider’s direction. That is, as legitimate competition threatens to steal away business from conventional broadcasting companies, those companies that create and own the right to original content have all the leverage in these discussions.
A major risk the company and its broadcasting competitors face is the proliferation of digital alternatives for media consumption. These online, on-demand platforms threaten to steal away viewers from traditional television, which could hurt advertising revenues in the future. Services offered by Netflix (NFLX) stream content directly to the customer without the burden of going through a distributor and committing to a bundle of channels of largely unwatched content. In an age when instant gratification is offered by upstart services, companies in Entravision’s position will need to bolster their product offerings and financial standing to improve their respective long-term outlooks.
Still, tracking data suggests that Entravision’s clientele is less apt to transition away from conventional television in the near future. While revenues were likely down slightly in 2013 from the prior year’s results, we think the main culprit is the lack of political advertising. For one, many of these streaming services do not offer a comparable slate of original Spanish-language programming. In our view, revenues will remain healthy through the expiration of the aforementioned network agreements. In the meantime, Entravision will continue to improve its exposure to growing Hispanic communities and urban areas.
The company is at something of a financial crossroads at present. The cost of extinguishing a portion of its debt likely rendered share net negative in 2013, while shareholders equity may very well also be negative once full-year results are made public. One of Entravision’s strengths is its leadership, as the company has proven to be a step ahead of market trends in recent years. One example supporting this is its 2008 spin-off of its outdoor advertising division. By divesting at the time for about $100 million, the company likely made more than it would have if it waited. Media conglomerate CBS Corp. (CBS) just enacted a similar plan, over five years after Entravision.
All told, investors interested in owning a piece of this Spanish-language broadcast and radio company are advised to consult Value Line’s quarterly reports for Entravision Communications Corporation as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.