Nexstar Ends 2022 With In-Line Q4 Results

Nexstar NXST posted an in-line end to 2022 as fourth-quarter revenue and adjusted EBITDA met FactSet consensus projections. As projected, fourth-quarter political ad revenue jumped to $265 million from $19 million a year ago, as full-year revenue of $506 million set a record for a midterm election year and came within 1% of the 2020 presidential year. However, core advertising continued to struggle, down 9% when excluding the impact of the CW, which was acquired in October. We expect core advertising to remain challenged in 2023 due to lower ad budgets and continued cord-cutting. We are maintaining our $205 fair value estimate.

Fourth-quarter net revenue of $1.5 billion increased by 14% from the prior year excluding the CW impact, driven by the higher political ad spending. Core ad revenue fell 9% to $478 million as national ads dropped by double-digits for the second quarter in a row. Local advertising was more robust, down only 2%. On the local side, Nexstar benefited from a rebound in auto as dealer inventory improved but was more than offset by lower gaming demand as fewer states launched sports betting. Political advertising displaced core ads once again as campaigns remained both willing and able to pay elevated rates for the limited available slots.

Nexstar’s largest revenue source, distribution, was flat at $462 million even with the addition of the CW. Earlier in the year, Nexstar benefited from improved terms and annual rate escalators in its 2021 renewals. This benefit declined in the quarter and was offset by pay TV subscriber losses. With roughly half of the subscriber base renewing in 2022 and another 40% up for renewal in 2023, management reiterated that retransmission growth would be in the high single digits to low double digits in 2023 with further growth in 2024. However, this growth may be short-lived as Dish Chairman Charlie Ergen recently attacked local networks and claimed that the next phase for retrans revenue will be one of decline, not growth.