Nexstar Earnings: Revenue Hits Record Levels Despite Weak National Advertising

Nexstar NXST posted a mixed start to 2023 as continued erosion in advertising spending weighed on the top line. The expected decline in political advertising revenue was compounded by an 8.5% decrease in core advertising. Despite continuing headwinds for core advertising, we expect distribution revenue growth from renewals along with earlier-than-usual political advertising spending to help stabilize the overall outlook for 2023. We are maintaining our $205 fair value estimate.

Nexstar generated $1.3 billion in revenue, up 4% year over year, benefiting from the inclusion of The CW Network, a 6.8% increase in distribution sales, and lower-than-expected subscriber attrition. With 40% of network affiliations up for renewal by the end of 2023 and new carriage agreements with YouTube TV and Hulu in the quarter, management projects that 2023 distribution revenue growth will come in at the upper end of its high-single-digit to low-double-digit guidance. Organic adjusted EBITDA fell to $556 million from $645 million a year ago due to increased news expenses and lower distributions from Food Network.

For CW, management remains hopeful that changes in leadership and a focus on unscripted and sports content will catalyze a 2025 return to profitability. While the shift away from the teen-focused scripted content holds potential, the new older target demographic is already well served on broadcast television. Another challenge for CW will be holding on to affiliate stations. While Nexstar owns the most CW stations at 37, with 32% audience reach, the network remains dependent on its more than 200 affiliates to reach the remainder of the U.S. CBS decided to drop affiliation for its eight stations, all in the top-30 markets and three within the top 10. The drop could be a worrying sign to other station owners since Paramount still owns 12.5% of CW.