Key Points

• ITV successfully executed the first phase of its “more than TV” strategy.
• ITV had an outstanding financial performance with total external revenue of 24% and adjusted EPS up 40% in 2021 despite the downward trajectory of the share price. 
• ITV is on track to deliver £100m of lost savings by the end of 2022 with a strong investment-grade balance sheet.

The ITV (LSE:ITV) share price is down by over 49% in the past year. And in 2022 alone, the stock has fallen over 40% to the point where it’s being removed from the FTSE 100 index!

Is this the start of its ultimate demise? Or have I just stumbled upon an opportunity to double my money? Let’s take a closer look at exactly what’s going on.

Positive 2021 results

ITV has two segments – Media & Entertainment and ITV Studios. And despite the direction of its share price, ITV delivered a strong financial performance in my opinion. Each of its segments increased its financial returns, pushing ITV’s total external revenue up 24% to £3,453m in 2021. By comparison, this figure stood at just £2,781m a year before when the pandemic created supportive tailwinds.

Breaking the performance further, the ITV Studio’s top-line performance came in 30% higher at £1,177m. While the Media and Entertainment segment was up 21% at £2,282m with total advertising revenue (TAR) up 24%. The adjusted EPS climbed 40% at 15.3p with underlying EBITDA surging by 42%!

Equally interesting for me is the fact that the company successfully executed the first phase of its “more than a TV” strategy. The successful execution resulted in more revenues from their streaming platforms. ITV is now the largest ad-funded premium streaming service in Europe with over 3.6 million global subscriptions. And now management has announced Phase 2 of its new strategy. If successful, the firm predicts M&E digital revenues will supercharge to £750m by 2026.

Pairing this progress with additional cost-saving initiatives, profitability is also expected to improve moving forward. And with long-term earnings trending upward, I believe ITV’s share price has the capability of doubling over the long run.

So why is the streaming stock falling?

What’s going on with the ITV share price?

As encouraging as the forecasts and predictions of future performance are, investors seem largely sceptical. And it’s not entirely without reason. Phase 2 of the group’s strategy involves multi-million-pound investments into creating new content – a move that could spectacularly backfire. After all, producing a new show costs a lot of money, and if such investments flop, ITV have essentially lit investors’ money on fire.

The group also has to fend off a lot of competition when it comes to securing viewership. The platform is ad-funded after all. And with other streaming services all bidding for consumer time, the necessity to produce a hit show is getting higher.

What’s more, ITV’s pricing power surrounding advertisements may soon be under pressure as other streaming services like Roku continue to climb the ranks in this space.

Needless to say, this creates a lot of pitfalls. And it’s entirely possible that the ITV share price continues to head in the wrong direction.

A final thought on ITV share price

In conclusion, with a P/E ratio of around 7, the ITV shares look quite cheap. At least I think so. The firm’s new strategy does carry significant risk. If management makes a series of poor content creation decisions it could cause enormous damage to ITV’s balance sheet, and, in turn, its share price. Nevertheless, that’s a risk I’m willing to take with my portfolio.

Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has published a Premium Report on Roku. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.