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The ITV share price is recovering. Should I buy now?

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The ITV (LSE:ITV) share price has been on the rise for the last 12 months, increasing by just over 80%. Most of this growth was achieved very recently and has nearly restored the stock price to its pre-pandemic level of around £1.35 per share.

What caused the ITV share price to rise? And should I be considering the business for my own portfolio? Let’s take a look.

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Why is the ITV share price rising?

ITV is the UK’s second-largest TV broadcasting company. It generates money by selling advertising space during live TV commercial breaks or on its digital streaming platform called ITV Hub. With Covid-19 lockdowns forcing most people to stay at home, the demand for TV and streaming services has increased significantly. But it has also caused some problems.

The firm had to temporarily pause the production of 230 projects. And with no new content being released, the business took a significant hit.

In early November, ITV released its Q3 earnings report, which showed just how significant that impact was — specifically, total revenue fell by 16% compared to a year ago. But despite the reduction in income, some promising trends emerged and are likely to be the driving force behind the ITV share price recovery.

Total viewing hours increased by 2% to 12.2bn, along with an additional 2 million accounts registered on ITV Hub. What’s more, 85% of the projects that were put on pause are now back in production.

Overall it seems that investors were impressed with ITV’s ability to get back on track, and so the share price has begun to rise. Looking at the full-year results for 2020, I can see why. While the company still reported a double-digit decline in full-year earnings, profits remained firmly ahead of analyst expectations.

There are some risks to consider

Running a TV broadcasting/streaming service is not an easy challenge. Viewing habits of consumers can change like the wind. Production teams need to be able to anticipate and quickly respond to a shift in interests. After all, producing a new series or film is an expensive process that doesn’t always pay off. Suppose ITV invests large sums of money into bad projects? In that case, viewership will fall along with the value of ITV in the eyes of advertisers.

Another rising threat is competition from other streaming services, such as Netflix and Disney+. These platforms offer a vast collection of original and exclusive content that gobble up users’ spare viewing time. While I find it encouraging that ITV Hub grew its registered users to 33m last year, both Netflix and Disney+ have more than double that.

The ITV share price has its risks

The bottom line

The competing streaming services are a significant threat to ITV and its share price. At least, I think so. However, I find it encouraging that the ITV management team is shifting its strategy towards further developing ITV Hub.

Combining its existing registered accounts, strong relationships with advertisers, and track record of producing popular content makes me believe that ITV can adapt to and thrive in the new streaming environment. Therefore I would definitely consider adding the stock to my portfolio even after the recent increase in the ITV share price.

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Zaven Boyrazian does not own shares in ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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