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What: Shares of radio station operator Cumulus Media (CMLS -1.17%) crashed on Tuesday after the company fell short of analyst expectations when it reported its fourth-quarter earnings. By noon, shares were down around 16%.
So what: Cumulus grew revenue by 19.5% year-over-year during the fourth quarter to $329.5 million, but this number came up short of analyst estimates by about $4 million. Almost all of this revenue growth was the result of acquisitions in late 2013: Pro forma revenue, which adjusts for these acquisitions, only grew by 0.3% year-over-year.
Cumulus reported EPS of $0.02 for the quarter, well below the $0.09 analyst were expecting. This is down considerably year-over-year, although a large tax benefit during the fourth quarter of 2013 skews the comparison. Operating income actually increased year-over-year, while the interest expense declined.
Broadcast advertising revenue, which makes up around 90% of Cumulus's total revenue, rose 12.2% year-over-year during the fourth quarter, but fell by 6.8% on a pro forma basis. Digital advertising and political advertising both rose substantially, making up for the pro forma decline.
Now what: Content costs rose 55% year-over-year, far faster than revenue, which likely contributed to the earnings miss. The fourth quarter marks an improvement compared to the fourth quarter of 2013, where interest payments completely wiped out operating profit, but Cumulus is still saddled with an enormous $2.5 billion of debt.
This debt makes it difficult for Cumulus to turn much of a profit. Much of this debt is tied to the $2 billion Cumulus spent on acquisitions in 2011, which led to both rapid revenue growth and big interest payments. Cumulus's big earnings miss hasn't given investors much confidence that the company can overcome its expensive capital structure, and the stock was punished as a result.