Today’s Bull of the Day is an example of how a company can effectively rotate out of less profitable lines of business and reinvent itself, sometimes many times, rewarding patient investors.
Today’s Bear of the Day is an example a another company with over a century of existence that is failing to adapt to a changing environment.
Clear Channel Outdoor Holdings (CCO) is the country’s largest outdoor advertising company with roots that go back all the way to 1901. The company’s business is extremely simple – selling advertising space on billboards, posters, buses and trains and in airports.
It hasn’t been great business lately. Other forms of advertising – online and in mobile device apps – have decimated the market for billboard ads. The advantage is clear, online advertising can be tailored to appeal to exactly the users who are most likely to make a purchase.
Leveraging a user’s search history and other preferences, businesses can literally put an advertisement for the exact goods and services you are likely to buy right in front of you and not waste time and money trying to appeal to someone else who’s not ever going to become a customer.
Online ads also offer the advertisers reams of valuable data about how well their marketing efforts are working. Knowing instantly which ads are successful at selling - by the number of click-throughs and the volumes of actual sales that get generated - allow a nimble advertiser to make changes on the fly, quickly ramping up successful campaigns and easing back on unsuccessful ones.
In contrast, roadside billboards use more of a “shotgun” approach, showing the same image and information to thousands (or even millions) of passerby in the hopes that at least some of them are interested enough in what you’re selling to make a decision to come to your business at another time.
In some cases, new digital LED displays allow a bit more flexibility because outdoor advertising can be changed more quickly than if it actually had be printed and physically installed, but that doesn’t change the fact that mass-media ads offer an inherent delay in the purchase process and don’t give the advertisers immediate feedback on what works and what doesn’t.
There’s at least one advertisement on the page you’re reading right now which, if appealed to you, would allow you to make a purchase almost instantly with a few mouse clicks. You don’t have to drive home and try to remember what it was you saw on the road that was interesting.
There’s also a good chance that ad was chosen because of something similar you read and seem to be interested in, and if the algorithm for choosing the ad turns out to be incorrect and you’re not interested, the advertiser doesn’t pay unless you click.
The advertiser who leases a billboard pays on a periodic basis whether the campaign was a huge success or a total failure.
In its current format, Clear Channel Outdoor has been a public company since 2005 and the share price results have not been encouraging. Over a period in which the S&P 500 has nearly tripled in value, gaining 187%, Clear Channel has lost 75% of it’s value, trading recently just north of $5/share.
The earnings picture going forward looks poor, with revenue in the area of $2.7B/year, but not no profits all the way through 2020.
Numbers like this earn CCO a Zacks Ranks #5 (Strong Sell).
Like other low priced stocks, this is probably no a good short opportunity simply because there’s so little to gain even if the shares were to drop quickly in percentage terms, but anyone who want to invest in the advertising space would be better off looking at Roku Inc (ROKU), a Zacks Rank #1 (Strong Buy) that’s leveraging its foothold in the streaming entertainment market to grow ad sales at double digits.
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