Radio stocks, among the showbiz sector’s highest-fliers on Wall Street in the past couple of years, are suddenly turning south despite strong advertising sales in the second quarter.
Stocks such as Chancellor Media, Emmis Broadcasting, Jacor Communications and even CBS Corp., which, with the addition of American Radio, will obtain the majority of its revenues from radio, have fallen 20%-25% in the past few weeks.
Capstar Broadcasting, the largest group of radio stations in the country, went public May 27 at a lower-than-expected $19 a share. The stock has since given up 10% to close Tuesday at $17.13.
Ad revenues up
Tuesday’s declines came even as the Radio Advertising Bureau reported that ad revenues for the medium increased 13% in April, marking the 68th consecutive monthly gain. Meanwhile, year-to-date revenues are running 10% ahead of last year’s, and RAB president Gary Fries expects the upswing to continue.
“There’s nothing on the horizon of any cause for concern,” Fries said. “The revenue side continues strong, and, because the expense side is basically flat, that’s the only side that could affect things.”
Wall Street analysts noted that the price weakness is in the wake of several huge stock offerings, which may have created an oversupply of radio stock.
Chancellor sold $1 billion worth of stock in March, while Clear Channel Communications sold $500 million a few weeks later. Capstar’s IPO raised $600 million, the same week a secondary offering from Emmis raised $170 million.
Morgan Stanley analyst Frank Bodenchak estimated that, since January, radio and TV broadcasters have sold a total of $5 billion of stock. “That equity needs to be digested,” he said.
The offerings aren’t finished either. Small-market radio operator Cumulus Media Inc. is currently marketing a $100 million offering, while medium-market operator Entercom is expected to tap the stock market for $150 million next month.
Whether the slump in the sector will affect these companies’ offerings is not clear.
Lehman Bros. analyst Tim Wallace, who expects radio advertising revenue growth in the second quarter may reach a healthy 12%, said the sell-off may also reflect broader investor concerns like the Asian economic crisis and stockmarket volatility.
Stocks with a television component have also been hit by expectations of a softness in TV’s advertising upfront market, which is being priced this week. Wallace noted, however, that while CBS’ TV network just about breaks even, its radio stations will generate $800 million-900 million in earnings before interest, taxes, depreciation and amortization this year.
Meanwhile, Clear Channel announced Tuesday that, with the addition of shares picked up on the open market, it now has commitments to obtain a majority position in London-based More Group, the large European outdoor company that it has been vying to takeover.