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The ITV share price is surging! Here’s why

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The ITV (LSE:ITV) share price erupted by double digits this morning after the business released its third-quarter trading update. Today’s 10%+ jump has pushed the 12-month return to an impressive 40%, reversing some of the lacklustre performance over the past couple of months.

So what was in this report that has the market excited? And should I be considering this business for my portfolio?

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The ITV share price rises on impressive earnings

As a reminder, ITV is the UK’s second-largest TV broadcasting company. Unlike modern-day streaming services, the group generates income by selling advertising spots during live TV commercial breaks, or on its online platform.

Viewer numbers benefited from the pandemic as everyone was stuck at home during lockdown. However, it also led to many projects being put on hold. And without any fresh content appearing on the platform, revenue actually suffered.

But looking at today’s report, it seems these problems are now over. With pandemic-related disruptions posing less of an issue, revenue from both its production studio and advertising divisions achieved double-digit growth compared to last year. Consequently, total sales climbed 28% from £1.86bn to £2.38bn and even came in higher than 2019 levels by around 8%.

A good chunk of this elevated income appears to have been driven by its recently-launched Planet V platform. This provides advertisers with a suite of tools and analytics to maximise the efficiency of their video-based campaigns. Over the last nine months, 90% of advert placements were booked using the platform from 850 different customers.

With a 39% jump in online viewing and management saying that total advertising revenue for 2021 will be the highest in the company’s history, I’m not surprised to see the ITV share price surge on these results.

Taking a step back

I can’t deny that the report certainly looked exceptional. But as with any business, ITV still has some challenges to overcome. As previously stated, online viewing has increased drastically. However, total viewing hours have actually fallen by around 4% since 2019. And that percentage increases to about 9% compared to 2018 figures.

To me, this suggests that competition for viewing time from other streaming platforms like Netflix are having a noticeable impact. ITV continues to expand its online user base with 34.8 million registered accounts. But this pales in comparison to Netflix’s more than 210 million paying subscribers. Needless to say, if the firm cannot sustain its viewing time, advertisers may look to other platforms. And that would be a disaster for the ITV share price.

Time to buy?

Running a video streaming business isn’t easy. While gaining an audience is difficult, retaining that audience is where the real challenge lies. Predicting shifts in consumer tastes and viewing habits isn’t exactly straightforward. And if the wrong prediction is made, it could end up being a very costly mistake.

Having said that, ITV has a track record of releasing popular content. And with management embracing and adapting its business to the new streaming era, I believe ITV and its share price have a bright future. Therefore, I’m considering adding this business to my portfolio.

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Zaven Boyrazian has no position in any of the shares mentioned. 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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