Almost one year after closing its acquisition of CBS Radio, Entercom Communications Corp. saw its stock fall by more than 10 percent upon announcing that third-quarter revenue had declined by 4 percent on a same-station basis from a similar period of 2017.
Conversely, Entercom’s stock increased by 20 percent after second-quarter earnings were announced in August despite an 8 percent decline in same-station revenue. The station had returned to the black in the second quarter after losing money in the two previous earnings periods and CEO David Field predicted a strong second half of the year as synergies took hold and merger-related costs dissipate.
According to the Philly Business Journal, the market’s response three months ago was an affirmation that investors believed the company is on track after a tumultuous period following its November 2017 CBS Radio deal.
Benefiting from the addition of the CBS Radio properties, net revenues rose in the third quarter from $122.3 million to $378.5 million but declined from $395.2 million to $378.5 million on a same-station basis.
Net income jumped from $3.4 million to $36.9 million but pro forma earnings before interest, tax, depreciation and amortization (EBITDA), a measure of a company’s operating performance, fell from $89.7 million to $86.7 million.The response from the investment community not a good one, as Entercom's stock fell from $7.61 at market close Monday to $6.71 at market close Tuesday after the third-quarter performance was revealed.
When asked why Wall Street had such a negative reaction to Entercom’s performance despite the company registering improved numbers over the second quarter, Justin Nielson, an analyst with SNL Kagan, said investors in radio station operators tend to judge performance largely based on revenue.
“The company had predicted revenue would be down this year by 2 percent to 4 percent,” Nielson said. “But the [legacy] CBS stations have always been a concern. Their revenue was going down when the deal was announced and I think people were looking to Entercom to turn that around. It just hasn’t happened yet.”
Moving forward, Nielson said analysts will be tracking the growth and performance of Radio.com, the digital home for Entercom’s stations and select outside partners. Over the summer, the company removed all of its 235 stations from the TuneIn streaming audio portal in an effort to boost Radio.com, which has yet to attract the listeners and advertisers of rival IHeart Radio’s streaming app.
Since the merger closed, Entercom has focused on retooling the legacy CBS properties, where there has been significant turnover before and after the deal closed. Entercom chose not to retain the market presidents in the three largest U.S. media markets — New York, Los Angeles and Chicago. More recently, it replaced market managers in Washington, D.C, and Pittsburgh. In all, Field has replaced 17 market managers.
Entercom said its best-performing markets in the third quarter were Las Vegas, Miami, Orlando, Sacramento and Seattle — Philadelphia was also cited as a top performer — and the top three advertising categories were consumer products, home improvement, and education.
Entercom expects to see $45 million in net cost synergies by the end of the year and hopes for more than that in 2019.
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