Nearly $8 billion has been wiped off the market value of Australia’s biggest media companies since the start of the year as rising interest rates and fears of a recession scared investors.
Companies such as Nine Entertainment Co, Seven West Media and Southern Cross Austereo have benefited from a buoyant advertising market over the past 18 months, even during the COVID-19 pandemic. But media analysts are warning the honeymoon period could be over as runaway inflation fuels fears of sharply higher interest rates.
Investment bank Macquarie downgraded its view of the sector to “underweight” last week over concerns Australian media companies may not be able to weather volatile market conditions or a possible recession. This is despite the fact that several companies such as Nine (the owner of this masthead) are investing in subscription products which are considered less vulnerable to fluctuations in the economy than advertising.
“While listed media companies are bullish on their ability to weather the cycle better than previous cycles given the structural tailwinds in their businesses (broadcast video, digital subscriptions, etc.), we will wait for evidence before share the same optimism,” a note from Macquarie said. “From a macro perspective, we agree with our equity strategists that monetary policy is a leading indicator of economic growth or the cycle more broadly. This suggests that we will be heading towards a COVID-like economic environment with a longer duration.
Rival investment house UBS does not share the view that there will be a recession, but analyst Tom Beadle said investors were concerned about the future.
“There are investors who think we are heading into a recession. To be honest, if we’re heading into a recession, then everyone’s numbers are too high,” Beadle said. “That’s not the UBS house view, so my view is consistent with that. The other concern is what’s happening with inflation and how inflation affects media advertising spend and costs .
Shares of major television, publishing, radio and billboard advertising companies have fallen 19% to 44% since January, compared with a 4.6% drop for the benchmark ASX 200 index. Nine Entertainment Co – which owns TV, radio, publishing and streaming assets – has lost $1.4 billion in value this year.
Broadcaster Seven West Media lost more than $500 million this year, while radio company Here, There & Everywhere lost $188 million. Those numbers contribute to a burnt $7.7 billion worth of the TV, radio and publishing industry this year. About $1 billion of Nine’s decline can be attributed to a decline in the value of real estate listing portal Domain, which lost $1.6 billion in value. Nine owns 65% of the company.