Sook Sees Growth — But Not Streaming — In His Nexstar Crystal Ball

Nexstar may have revenue that’s 40% greater than the next largest local broadcaster, but the company isn’t stopping there. In three years’ time, it’s likely to be even larger. That was one of the messages delivered this morning during the company’s first quarter earnings call.

Acquiring the CBS stations, should they become available, is questionable. “Obviously given our station footprint, you know, the digestion of CBS station assets would be a tough path, particularly under this regulatory environment and regime. If that were to change, maybe, you know, our opinion would change,” said Perry Sook, the company’s founder, chairman and CEO. He said he sees value in just owning the stations, without the CBS network.

Streaming platforms don’t interest him as an investment. “The main reason we’re not in streaming is because we just don’t think it’s a good business,” Sook said. “Everyone wants to stream because they don’t have broadcast assets that are free over-the-air that can reach 100% of the population. So they’re trying to expand outside of that traditional pay TV universe. But we’ve been there from time immemorial. So the more things change, the more they start to look the same.”

That said, “we will continue to look at opportunities to grow the company and create additional value for shareholders beyond the embedded 20% return of us buying back our stock,” Sook said. “If I had to bet, I would bet the company will be larger three years from now than it is today. What acquisition will lead to that in combination with organic growth? I can’t really say. But I’m excited to run out those ground balls and find out.”

Among the opportunities Nexstar foresees is a partnership with other broadcasters to gain nationwide spectrum coverage for a NextGen business.

Lee Ann Gliha, EVP-CFO of the company, urged analysts to look at Nexstar in a different light — not to compare it with the company’s broadcast peers when making their valuations. “While we understand the desire to compare notes in a sector where there are a relatively small number of public companies, I know for those of you who’ve been around for a long time Nexstar used to be just one of the pack. But times have changed and Nexstar has changed,” she said.

“For the last 12 months, ended March 31, 2024, we generated almost $5 billion of revenue. We have a market cap of $5.5 billion and an enterprise value of over $12 billion. Our revenue is more than 40% greater than the next largest local broadcaster; our market capitalization is more than 110% greater; and our enterprise value is more than 65% greater,” Gliha added.

In the first quarter, Nexstar reported that it delivered higher net revenues than at any point in the company’s history. Its advertising revenue for the first quarter was $512 million, a 1% decline from results for the same period last year. Political revenue totaled $39 million, which was down over the same period in the last presidential election year, 2020.

“Excluding political, advertising declined 7% in the quarter impacted by a continued challenging national advertising market and a slightly softer local advertising market, as local advertisers and their customers showed the strain of the high interest rate environment,” said Michael Biard, president/COO.

“That negative comparison was exacerbated slightly this quarter by the Super Bowl airing on CBS versus Fox, which is less favorable to us,” Biard added.

But the situation is getting better in the second quarter. “We’re seeing a much slower rate of decline versus the first quarter, as we are currently pacing down in the low single digits as advertising headwinds begin to abate,” Biard said. “In particular, we’re starting to see some green shoots on the national side as advertisers respond to the large, aggregated audiences we deliver, particularly in live sports and special events. And on the local side, we are seeing improvement in core television while we continue to benefit from double-digit growth in local digital advertising.”

Biard noted that Nexstar’s move to take national ad sales in house is now complete. Later in the call, Sook said that the company also will be taking political sales in house in 2025. Given the huge wave of election spending this year, “we chose to slow-roll that transition to make sure we hit on all the metrics and deliver our revenue promise not only to ourselves but to our shareholders,” Sook said.

Distribution revenue was up 4.5%, to $761 million, an all-time quarterly high. And together with advertising and another revenue category known as “other,” the total net revenue came in at about $1.28 billion.

Net income totaled $167 million, an 89.8% improvement, the result of increased revenue, lower operating expenses and a $40 million gain on the sale of BMI, which Nexstar owned in part.

Sook also spent some time touting advances at the CW and NewsNation. Nexstar has owned CW for just over a year now, and it’s marching toward breakeven. “The first quarter operating profit improved by $50 million year over year, driven by a $55 million reduction in programming costs. And for the full year we expect the CW’s operating profit to improve by over $100 million,” Sook said. “In terms of viewership, The CW delivered sequential ratings growth in the first two quarters of the ’23-’24 broadcast season.”

Sook said that NewsNation is now second only to Fox News, in terms of cable news network distribution, with more pay TV homes than either CNN or MSNBC. Awareness remains the “opportunity.” In the company’s survey’s the awareness level has improved, but it aims to do better than the current 35%.