FTSE 350 Review: Back the publishing stocks making their own luck

Advertising spend is the lifeblood of the media sector, and it is drying up. Ad sales declined at ITV (ITV) and Future (FUTR) last year, while communications agency WPP (WPP) struggled to get clients to invest in new campaigns. Shares in these groups have taken a battering as a result, and valuations are low. The question for investors is whether they will move lower still. 

The mood in boardrooms remains fairly downbeat, but industry forecasters expect global advertising spend to grow by mid single digits next year. Analysts at Peel Hunt also point out that “once we hit the trough, growth after a period of downturn is usually the steepest for advertising businesses”. Big 2024 events such as the Olympics and the UEFA European Football Championship could provide a welcome boost.

Given the persistent economic uncertainty, however, there is no guarantee that things won’t get worse before they get better. 

The media sector stretches beyond broadcasters and magazines, of course, and the likes of Rightmove (RMV), Auto Trader (AUTO) and Auction Technology Group (ATG) look far more robust. These capital-light platform businesses essentially advertise products – be they houses, cars or paintings – themselves, and charge a fee for doing so. Their scale means they keep attracting buyers who keep attracting sellers, and so on: the network effect.

They are not immune to macro conditions. ATG shares were hit by “some softening” in the arts and antiques market last year, and sentiment towards Rightmove briefly soured after a US-listed property giant challenged its dominance by buying rival website OnTheMarket.

Over the longer term, however, these digital platforms look more resilient than much of their peer group. And the challenges they faced last year means that, while they’re still not cheap, they are more attractively priced than they once were. 

The media industry also contains a number of companies in flux. Ascential (ASCL) is reinventing itself as a pure-play events business, following in the footsteps of Informa (INF), which now focuses primarily on big trade meet-ups. These stocks performed very well in 2023 when conferences came roaring back after lockdown, but both look significantly more cyclical now they have sold off their B2B information arms. 

By contrast, FTSE 100 giant Relx (REL) is enjoying the bounce-back in events, but still makes the lion’s share of its profits from selling data subscriptions.

In a sector marked by volatility and digital disruption, a degree of solidity is extremely appealing. The tide will eventually turn on the advertising market, but companies that can make their own luck should have an easier time. Traditional publishers and broadcasters are also up against the likes of Netflix (US:NFLX) and Meta (US:META), which are all scrabbling for people’s attention. By contrast, corporate demand for quality data looks fairly settled, and digital platforms have the network effect on their side.