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ITV shares: 5 things I’d consider before buying

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ITV (LSE: ITV) shares have rallied over the past six months, but the pandemic hasn’t helped the company. ITV recently released its full-year results and for now I’m watching the stock closely.

Here are five things I’d look out for before dipping my toe in.

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#1 – Coronavirus victim

ITV is a company that relies on traditional TV advertising. So in times of crisis, I’m not surprised the business was hit. Marketing budgets are one of the first to get cut.

The pandemic also meant that ITV had to halt its productions, which hurt revenue generation. Hit shows like Love Island were cancelled and the soap opera programme was reduced. Even worse, there was a lack of major sporting events to broadcast.

This gave companies little incentive to pay for TV advertising. But this negative trend is somewhat reversing now. I still think there remains long-term pressure on the TV advertising revenue stream. Most consumers, including me, nowadays stream content through their smart phones and tablets. This brings me nicely to my next point.

#2 – Digital offering

I’m glad to say that ITV has been boosting its digital offering. The company offers direct-to-consumer services through its online service, ITV Hub. This allows viewers to stream their favourite shows. ITV Hub has been growing strongly and I expect this will continue.

The company has also joint-ventured with the BBC to offer consumers Britbox. This is expanding too and I like that ITV is diversifying its content offering. But while these digital offerings are growing, I reckon they will take sometime to contribute significantly to profits.

#3 – Competition

ITV has jumped onto the streaming bandwagon but it’s a very competitive space. The likes of Netflix, Disney+ and Amazon Prime have larger budgets and are eating up large chunks of the streaming market share.

I reckon ITV may struggle to complete in this space. Especially when its competitors have bigger branding power and more varied content.

#4 – ITV Studios

I think where ITV lacks in streaming, it could make up for in its production business. ITV Studios creates, produces, and distributes a range of programmes.

As I mentioned before, productions were halted due to the pandemic but have now resumed. ITV has invested in its creative development and is focused on expanding this business internationally.

ITV Studios has had some great success in recent years. Love Island is now in 20 countries and Snowpiercer has been recommissioned for a third series.

#5 – Debt and liquidity

For now ITV has its debt under control. But if revenue is hit again, I think this could be in the limelight. At present, ITV has access to significant liquidity should it be required.

My view

A key point for me is that a lot of ITV’s revenue and profits is derived from traditional advertising, which is under pressure from long-term trends. The company is managing a lot of spinning plates. It’s doing the right things but I think this will take time.

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Nadia Yaqub has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Walt Disney. The Motley Fool UK has recommended ITV and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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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