Advertising slowdown pulls down Zee’s Sep quarter performance

Advertising slowdown pulls down Zee’s Sep quarter performance

The advertising revenue outlook for media firms has worsened from the beginning of this fiscal year. Considering that, it’s not surprising that Zee Entertainment Enterprises Ltd now expects ad revenues to grow in single digits in the current fiscal compared with the double-digit growth expected at the beginning of the year.

“The advertising scenario is not encouraging and there is a slowdown in ad spends," said Atul Das, president (corporate strategy and business development) at Zee, while commenting on the firm’s September quarter performance.

For the three months, ad revenue accounted for 55% of consolidated revenue and fell by 4% over the same period last year. “There has been a decline in advertising revenue on account of sports, due to lack of big sporting events in the quarter," Zee said in a statement. “As a result, overall advertising revenues have recorded a decline."

Zee’s sports segment includes its sports channels, where the company has not been able to reap the full revenue potential, resulting in the segment reporting losses. Das said, “Excluding the sports business, the advertising revenue has shown single-digit growth."

On the other hand, subscription revenue growth at 6% looks comparatively better. There has been a change in the accounting treatment of domestic subscription revenue, and to that extent, subscription revenue is not comparable. Looking ahead, while the outlook for the international subscription revenue seems muted, the domestic outlook is far more promising, said Das.

Overall, revenue increased by 1% and profit before tax by 7.6%, helped by better operating performance. On the operating front, even as operating profit margin adjusted for the sports segment fell 36.5% compared with 41% in the year-ago quarter, it has improved sequentially by 170 basis points. One basis point is one-hundredth of a percentage point.

One highlight of the numbers is that losses from the sports segment have reduced in the September quarter to 22.6 crore from 56.6 crore in the preceding quarter. The company has maintained its guidance of sports business losses for FY12 at 100 crore.

That’s encouraging, considering that such losses for FY11 were as high as 207 crore.

It’s heartening that sports business losses have reduced, which was more or less on expected lines, said analysts. Given that and the weak business outlook (international subscription, advertising), there are few triggers for the stock to outperform in the near term.