TEGNA Inc.

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 3/5

TEGNA Inc. is a large media company, primarily a broadcaster, which owns TV and radio stations and digital platforms across the United States. Their primary revenue is derived from advertising, although they have various sources of revenues across local and national levels.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

TEGNA’s Moat Analysis: 2/5 TEGNA’s moat is relatively weak, scoring a 2 out of 5, based on my analysis. While the company benefits from scale and established local presence in the broadcasting industry, they face numerous challenges that limit their pricing power and ability to generate superior profits over the long term. I’ll go into this a lot more in the analysis. Here’s how the company stacks up against different sources of moat:

  • Intangible Assets (Brands, Patents, etc.): TEGNA’s local news brands provide some protection and can help maintain local viewership. It is likely that local population will have emotional ties to the local TV station they have been watching for years. However, these brands are susceptible to competition from new digital media, and the brands don’t have national level recognition, thereby providing limited pricing power.
    • Score: 2/5:
  • Switching Costs: Switching costs are very low. Viewers can easily change channels or migrate to other platforms (such as digital streaming) without any cost or inconvenience. Consequently, TEGNA’s ability to keep customers is very limited. Also, advertisers have little loyalty to any specific platform and will spend their money with the network that give them the most results.
    • Score: 1/5
  • Network Effect: Although TEGNA operates networks of affiliated channels, the network effect in the traditional media space is not as pronounced as in technology sectors. Furthermore, those affiliated channels are very easy for competitors to replicate.
    • Score: 2/5
  • Cost Advantages: TEGNA benefits from economies of scale in the production of local content and in management of the broadcast network. In large-scale operations, their ability to get volume discounts from other companies also allows it to compete on more attractive costs. However, these cost advantages are not so big that it will keep the competitors away. Also, the competitors could benefit from cost-cutting measures as well.
    • Score: 3/5

Overall, while TEGNA benefits from some minor barriers to entry, these are not strong enough to constitute a wide or even a narrow moat. Their local presence is great for a local audience, but not enough to stop the shift to digital.

Legitimate Risks That Could Harm the Moat and the Business Resilience: TEGNA faces several significant risks that could weaken their competitive position:

  • Cord-Cutting and Shifting Viewing Habits: The most significant risk is the ongoing decline in viewership of traditional broadcast television, as consumers increasingly switch to streaming services and other digital content platforms. This trend is likely to continue for the foreseeable future, significantly affecting TEGNA’s ad revenues and subscriber fees.
  • Intensified Competition: The traditional media industry is facing fierce competition from digital media companies, social media platforms, and other streaming services. These new entrants are not bound by old regulations and practices, thereby, giving them more flexibility and leverage.
  • Technological Disruption: Fast-paced technological changes and new media platforms can disrupt the value they generate from their local networks, as well as create the need to invest heavily into these technologies.
  • Ad Spending Concentration: Most ad revenue is concentrated in the few biggest players in the market. Further consolidation in this space may mean further reduction in pricing power as the advertisers will have much more leverage over local networks and be able to bid down prices.
  • Regulatory Risk: The regulatory changes may directly affect the revenue of the company. If they fail to be compliant or to anticipate and adhere to the new regulations, then this may hamper their operation and profitability.

Despite those risks, TEGNA has considerable resilience as they have a long history of operation and strong local presence in their respective communities, thereby giving them brand recognition and a level of trust. They have also been proactively working towards new innovative ways of monetization, such as targeted local advertising.

Business Description:

  • Revenue Distribution:
    • Advertising Revenue: The majority of TEGNA’s revenue comes from advertising sales. This is primarily derived from local, national, and digital advertising. It also includes ads on over-the-top streaming services. Advertising sales tend to be cyclical and fluctuate based on overall economic conditions.
    • Subscription Revenue: The company earns subscription revenue via their various platforms. This is a much more stable revenue compared to advertising as it does not have high fluctuations due to the economy.
    • Other Revenues: TEGNA also has other revenue sources, such as their programming agreements, and also other initiatives that are being developed to increase the revenue, which could also include strategic partnerships.
  • Industry Trends:
    • Shift to Digital: The most important trend is that viewers and advertisers are shifting to digital media. This includes online news and streaming services. This shift poses a challenge to companies that have a majority of their earnings in traditional channels, such as TV and Radio.
    • Fragmented Audiences: Viewership of broadcast media is becoming more fragmented across different platforms and sources.
    • Increased Competition: Local media companies now face more and more competition, which comes from major digital platforms, other local players, as well as from subscription-based streaming services.
  • Margins: Margins may vary by segment, but are typically quite high in mature traditional media. However, the margins are being squeezed by the increased competitive landscape. As consumers migrate towards the internet, the profitability of traditional media is also seeing significant erosion.
  • Competitive Landscape:
    • TEGNA faces competition from various sources. Firstly, they compete directly with other media companies operating in the local area. That competition can come from another TV station, a radio channel, or a local newspaper. Second, they face competition from huge national media companies who command a sizable amount of total advertising market. Finally, and more importantly, they compete for market share from digital platforms and other content providers.
  • What Makes TEGNA Different?:
    • Strong local presence: TEGNA is very active in the local news space. This means they have emotional ties with their communities, thereby, attracting loyal customers. This also allows them to generate a better customer base.
    • Focus on new strategies: TEGNA is investing in digital marketing, OTT streaming, and other business channels to offset the decline in traditional revenues.
    • Diverse range of brands: They have a diversified range of brands and channels, giving more offerings and alternatives to customers.

Financials In-Depth:

  • Revenue Trends:
    • Revenue has been relatively stable over the past few years, although the revenue from traditional media has been on a decline. While the digital revenues are growing, they are not yet enough to offset the decline in traditional revenue.
  • Profitability: Although margins have been high in the past, they have been under significant pressure as competition increases and traditional revenue declines. They have been making efforts to reduce their cost, but not enough to offset the decline in earnings.
  • Debt: The company has substantial debt that they use to maintain the network, invest in expansion, and acquisitions. The debt profile needs to be monitored to see that the company can service it and has sufficient liquidity to take advantage of good investment opportunities.
  • Free Cash Flow: The free cash flow generation ability of the company is good, although it is expected to decrease by the rising competition. This aspect needs to be closely monitored as it is paramount in paying back debt and other obligations.

Based on the financial statements (Form 10-Q/K filings) and recent earnings calls:

  • Latest Results (Q2 2024):
    • Total revenues are $732 Million, a slight decrease compared to Q2 2023 at $736 Million.
    • Operating expenses are $432 million, an increase of $15 million compared to the previous quarter.
    • Net income for Q2 2024 is $148 million, a huge increase compared to $123.7 million in Q2 2023.
    • Diluted Earnings per Share is $0.65 in Q2 2024.
    • Adjusted EBITDA for Q2 2024 was $188.5 million, a slight increase from $186.3 million of the previous quarter.
  • Year-to-Date Results (9 months ended 30th September 2024):
    • Revenues were $2.13 Billion, a decrease compared to $2.19 Billion from the prior year period. *Operating expense were $1.28 Billion, an increase of more than $60 million year over year.
    • The company reported Net Income of $419 million, which is an improvement over $389.5 million in the last year’s period.
    • Diluted earnings per share was $1.84.
  • Adjusted EBITDA for the period is $585 million, a decrease of about $20 million compared to the previous year.

Important Points from Earnings Calls & News

  • The company’s total revenues have declined as the overall market has declined and shifted to other platforms.
  • The company is trying new revenue-generating channels like targeted local advertising and other forms of monetization.
  • The management has shown a positive attitude towards restructuring and streamlining the business to achieve cost-effectiveness.

Understandability Rating: 2/5 TEGNA is relatively complex, scoring a 2 out of 5 on understandability due to the complicated nature of its business model and the rapidly changing nature of the industry.

  • It is very easy to understand that a TV station makes money from advertising, but that is just one part of the total revenue. It is difficult to understand all the other different revenue components.
  • Although their balance sheet appears simple, the company uses highly sophisticated financial strategies and has complex debt structure.
  • Finally, and more importantly, the industry is changing so rapidly, that the future prospects of the company are very difficult to understand and predict.

Balance Sheet Health: 3 / 5 TEGNA’s balance sheet health is moderately strong, scoring a 3 out of 5. Here are the important details:

  • Debt Levels: TEGNA has a substantial amount of debt from acquisitions and growth expenditures. While manageable, high levels of debt do increase the risk for the company.
  • Liquidity: The company has enough cash and other liquid assets to meet its day-to-day obligations.
  • Intangible Assets: A substantial amount of the company’s assets are comprised of intangible assets, which can be written off and have a significant impact on the company’s balance sheet.

The company is not in immediate danger of financial distress. However, the level of debt needs to be monitored to ensure stability of operations and take advantage of growth opportunities.

  • Conclusion: TEGNA is a large player in the media and broadcasting industry, with a good regional presence. While it has some minor barriers to entry, they are not enough to protect the business from new competition and from the shift of customers to digital platforms. The company’s ability to adapt to the changing media landscape will determine its future performance. Their debt profile needs careful monitoring to make sure they are not overleveraged and can keep a balance between risk and reward. The business has some understandability issues, as well as, it’s somewhat hard to predict their financial situation in the near future. The company faces various risks that can undermine its business performance. Thus, investors need to take a detailed look into the financials of the company before investment.