ITV 2022 earnings preview: Where next for the ITV share price?

Key takeaways

• Success of ITV Studios continues to counter softer demand for advertising
• ITV navigated the inflationary environment and profits are forecast to have grown almost 10% in 2022
• However, rising costs and the need to ramp-up spending on content for its streaming services is forecast to see a sharp drop in profits in 2023
• Reports suggest the company could sell a stake in ITV Studios to fund its streaming ambitions
• More cost-cutting measures could be announced

When will ITV release 2022 earnings?

ITV will release annual results for 2022 on the morning of Thursday March 2.

ITV 2022 earnings consensus

ITV is forecast to report a 4.5% rise in annual external revenue in 2022 to £3.6 billion, according to consensus numbers from Bloomberg. Pretax profit is expected to increase 9.7% to £526.6 million.

ITV 2022 earnings preview

ITV saw its advertising business hit by softer conditions in 2022, but it managed to counter this with strong growth from ITV Studios that produces content for its channels and other broadcasters.

Advertising revenue is forecast to be down 1.3%, which will drive a 1.1% fall in sales from its Media & Entertainment division. It is worth noting that it is coming up against record comparatives from 2021 and that revenue from ads is still ahead of what we saw before the pandemic hit. The benefit from broadcasting the FIFA World Cup in November and December should have provided a boost in the final quarter. Still, the ad market is likely to remain challenging in 2023 and markets think revenue will drop another 4% in 2023 as the boom we saw in 2021 continues to unwind.

The other major component of the Media & Entertainment division is its streaming services that have been launched in response to cord-cutting as people shift away from linear TV, with advertisers swiftly following. ITV operates the largest group of ad-funded streaming platforms in Europe in terms of revenue, although that is under threat as major players including Netflix and Disney launch their own ad-funded tiers.

Streaming is at the heart of ITV’s strategy and the company launched ITVX back in December and said this should ‘supercharge our streaming business’. ITVX is an ad-funded platform with over 15,000 hours of content, including hundreds of free films and TV series.

We already know that ITVX has attracted new users and investors will hope for more good news this week considering it underpins its ambition to generate £750 million in annual digital revenue by 2026. That is a big ambition too considering that is more than double current levels, and will heighten the pressure on ITVX to deliver this year.

The soft ad market in 2022 will be countered by a 13% increase in revenue from ITV Studios, which has outperformed the market with hits this year such as Hell’s Kitchen USA and The Voice in Germany.

The company has said it expects the brakes to come down on ITV Studios in 2023, but said it believes revenue can grow above 5% and hopes margins can improve as inflationary pressures ease. It is aiming for the unit to deliver an adjusted Ebita margin of 13% to 15%, but said it would remain toward the lower end of that range in the near term.

There have been rumours swirling that ITV could be broken up amid reports that there could be a deal in play for ITV Studios after Reuters reported Hollywood producer Peter Chernin and the owner of a French TV production group had expressed an interest in buying a stake in the unit, with private equity groups also thought to be circling.

ITV is reported to be uninterested in selling the unit altogether but there have been suggestions it could offload a stake to raise funds that could help fuel its ambition to grow its streaming business following the launch of ITVX. Its streaming services are battling against some of the biggest names in media and ITV will need to spend big on content to compete.

We have seen consolidation continue in the media industry in recent years as companies race to acquire more content by purchasing production assets, which could allow ITV to secure a premium valuation for the unit should it be willing to consider any deal.

Notably, the reports this month suggested a deal could value ITV Studios at up to £3 billion. That highlights the prospect that its valuation is being dragged down by the rest of the business and underappreciated by the markets considering ITV as a whole is currently valued at just £3.5 billion.

ITV has successfully navigated the inflationary environment in 2022 considering profits are expected to jump almost 10% in 2022, although ITV has warned that it expects things to be tougher in 2023 and analysts are forecasting a sharp 26% drop. ITV has already said it is ‘looking carefully’ at options to introduce more mitigation measures, which means we could see more cost-cutting measures outlined this week – especially as ITV looks to ramp-up spending to make content for ITVX.

ITV has pledged to pay an annual dividend of at least 5.0p per share in 2022, including the 1.7p payout made for the first half. The company says its balance sheet is strong enough to invest in its digital transformation and keep growing returns to shareholders.

Where next for the ITV share price?

The ITV share price has soared almost 60% since testing post-pandemic lows back in September, but the stock has found it more difficult to find higher ground lately. It has tried and failed to break above 90p at least five times over the last three weeks, demonstrating it’s a tough ceiling to crack.

The 14 brokers that cover ITV see slightly greater upside potential from here with the average target price sat at just over 97p.

The uptrend that can be traced back December remains intact but is being tested today, with shares down over 2% in early trade today. The uptrend or the 90p ceiling will have to give way and could provide a clue about where the stock is headed next. We have seen 85p provide some support this month, which needs to hold to avoid a fall back toward the 50-day moving average.

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