-Shares slump on 40% decline in digital advertising yield
-Questions over sustainability of clickbait content
-Earnings outlook cut for 2022 and 2023
Shares in news publisher Reach (RCH) slumped 28% to 84.3p in early trading after highlighting a tough macro backdrop.
Digital revenues have been impacted by a drop in the ‘open market programmatic yield’ that has been driven by the conflict in Ukraine, and a weakening advertising environment.
Headline results were in line with expectations. Revenues declined by 1.6% year-on-year to £297.4 million.
Operating profit declined by 31.5% to £47.2 million, and earnings per share declined by 32.6% to 12p.
The net operating margin fell from 22.8% to 15.9%, and the cash position has declined by 19.9% to £43.8m. The dividend has been increased by 4.7% to 2.88p.
CONTRACTING ADVERTISING YIELD
Today’s first half results are particularly disconcerting because they undermine a major reason for owning the stock.
Advocates of Reach have suggested that there is considerable scope to increase its advertising yield.
If you compare the advertising yield of open market sold slots (such as through Google auctions) with a private marketplace (advertising space which is sold directly), the latter can be several hundred percent higher in yield.
Analysts who have recommended Reach have argued that the increasing scale and granularity of Reach’s digital data would enable it to engage in more private marketplace transactions, thereby securing a higher yield for advertising.
A good example is the ‘inyourarea’ portal, which creates hyper local digital data that is immensely valuable to small and medium-sized businesses.
CLICKBAIT CONTENT HIT IN ADVERTISING SLOWDOWN
Commentators who have adopted a more cautious stance with respect to the growth prospects for Reach believe much of its content amounts to nothing more than ‘clickbait’ and low-quality journalism.
That’s been a successful way to attract eyeballs and build up data on users, but is that a sustainable business model?
Despite an 8% increase in page views the advertising yields on open market programmatic fell by 40%.
This impacts 50% of digital advertising.
EXPERT VIEW
Numis analyst Gareth Davies said:
‘Slower than expected digital growth in the second quarter sees us cut our expectations for full year 2022, taking a cautious view on growth in 2023.
‘Our target reduces to 340p from 375p to reflect the forecast cut’.
