Uninspired by Entercom's Quarter

Although Entercom (NYSE:ETM) continues to pay dividends and buy back shares, that doesn't seem to be enough to console the investors who are growing queasy about radio's growth prospects.

In its first quarter, Entercom reported a net loss of $564,000, or a penny per share, compared with earnings of $7.8 million, or $0.19 per share, this time last year. Revenues increased 10% to $100 million, and same-station revenues increased 1%.

In its conference call, the radio company's management said the numbers don't do justice to the quarter, since it "made a number of significant investments and strategic moves to enhance future performance, albeit at the expense of dampening short-term results." Entercom said it has been hard at work enhancing the performance of several of the radio stations it recently purchased from CBS (NYSE:CBS), and it's also divesting itself of one of those former CBS properties, a station in Austin, for $20 million.

Entercom's outlook wasn't too enticing; it said it expects second-quarter same-station net revenues to come in flat, with same-station operating expenses in the second and third quarters up 5%. In the conference call, management expressed disappointment in current "sluggish" conditions in the industry, although for the future, the company said it's focusing on three strategies: brands and content, business development, and the digital platform.  

Investors who like radio companies generally point to their historically copious cash flow, and Entercom, a Motley Fool Income Investor recommendation, has indeed been returning cash to shareholders through its dividends and share buybacks.

On the other hand are plenty of investors who aren't so enamored with radio companies, and I fall into that camp. Competition is fierce, both among terrestrial rivals Entercom, Clear Channel (NYSE:CCU), and CBS, and between satellite-radio firms XM (NASDAQ:XMSR) and Sirius (NASDAQ:SIRI). Plus, music lovers can also easily augment their listening time with more personalized experiences from their Apple (NASDAQ:AAPL) iPods and Internet radio. Listeners have many options, and it's no wonder that many advertisers see other industries as more promising for their messages.  

There's logic in the idea of investing for the long term, even if it's costly in the short term. Yet judging by the challenges that face the radio industry, many of us have good reason to suspect that growth will continue to be a challenge for companies like Entercom.  

Tune in to related Foolishness:

• Entercom's previous quarter was a costly one.
• The radio company also dialed down growth in the quarter before that.
• One Fool believes satellite radio will fail.

Entercom is a Motley Fool Income Investor pick. See what other dividend-payers James Early and company have recommended by taking the service for a free, 30-day trial.