What happened
Shares of radio and podcasting company iHeartMedia (IHRT -0.47%) plunged as much as 39.7% in trading on Wednesday after the company reported fourth-quarter 2022 financial results. Shares recovered slightly by midday but are still down 23% as of noon E.T.
So what
On the surface, the numbers look good. Revenue was up 6% in the quarter to $1.1 billion, operating income jumped 41% to $173 million, and free cash flow was $165 million. But guidance is what has investors concerned.
Management expects revenue to fall by the midsingle digits in the first quarter of 2023 and thinks adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will be $80 million to $90 million, down from $316 million last quarter. The company seems to be in a tailspin as advertising spending slows.
Now what
The big problem for iHeartMedia is that there's $5.4 billion of debt on the balance sheet, which is going to be tough to pay down if earnings are rising, but impossible if results are getting worse.
Advertisers are moving to more digital forms of advertising, and that's simply not where iHeartMedia excels. The company still has a lot of legacy radio assets in a structural decline, and podcasts don't necessarily make sense at large companies like this. Smaller producers are more equipped to grow cost effectively without large sales staffs, using the digital nature of platforms like Spotify.
The cash flow looks great, but dig a little deeper and iHeartMedia's business is in long-term trouble.
