[Signal] ASX results season tells us plenty about the marketing and media environment right now and what to expect over the next 12 months

Hello, this is your weekly SIGNAL [28.08]?

This week: ASX results season tells us plenty about the marketing and media environment right now and what to expect over the next 12 months: Ooh Media, Adore Beauty and Southern Cross Austereo analysed in more depth.

1. OOH MEDIA: SHARES BOUNCE BUT THE REAL GROWTH IS CONCENTRATED IN LARGE FORMAT

What’s new: Ooh released its half year numbers last week and it showed some improvement over the prior period. Shares are trading at around $1.50. For context at their highs (around the Adshel merger) they were at $4.20. The share price has bumped as some analysts feel OML is well positioned to take revenue from TV, but let’s look a bit deeper at how true this is

Why it matters: When comparing OML’s half yearly with the nearest pre COVID comparison (2019) the majority of the improvement has come from large format/ This was at $67.5m for the 2019 half, and was $103.4 for the 2023 half. Transit has declined, retail is generally flat, fly/airport is down and locate is down. So for all intents and purposes one format is doing all the growth work. Retail is challenged due to retail media, fly/airport is challenged due to a reduction on b2b/software/large enterprise spend and transit has flat four year CAGR. The hypothesis that out of home can take TV/screens money is based on outdoor being a large share of total market for 23, but it’s unlikely (in my view) TV will decline at 2023 levels moving forward, and it’s unlikely the majority of this migrating spend will not largely go to online video. Outdoor does have marginally better growth prospects than the broader industry, but it’s likely this spend will come from channels such as radio more than TV unless the out of home operators can really ramp up high quality outdoor site additions.

Client implication: Large format is seeing strong investment improvements which could result in price inflation unless supply is increased. Flatness in other formats could signify an opportunity for value, particularly in airports where passenger volumes are back to pre COVID levels but there’s 30% less advertiser demand.

Read more: OML half yearly investor results presentation Note – I own a small portion of OML shares, purchased in mid 2021

?

2. ADORE BEAUTY FACING THE STANDARD ECOM CHALLENGE – LOW MARKET SHARE, MAJORITY OF CATEGORY DON’T SHOP THEIR BRAND. BRAND MARKETING CAN FIX THIS.

What’s new: Adore Beauty is one of the most publicised listings of a pure ecommerce business, but has never traded at a level above its listing price of $6.70. It’s share price last week was $1 based on FY23 results that showed a 9.6% decline in revenue and customer volume dropping 8%

Why it matters: Adore has been struggling for growth for the last 3 years and is now starting to go backwards. In their initial prospectus they disclosed that the beauty and personal products industry would be a $12.4b one in 2023. Based on their $181m in annual revenue they have approx.. 1.4% of the total market and only 5.5-6% of the online market (based on their projection this would be a $3.2b market in 2023). Adore had 801k active customers, with 490k of those returning from the prior year and 311k new. The year prior they had 398k new customers, year before that 458k new customers, year before that 371k new customers. The headline here is Adore does not have enough new customers and is becoming too reliant on returning ones. Of the 872k total customers they had in 2022, 490k returned. That means 382k churned out. Herein lies the challenge of reliance on repeat customers. Every retailer will churn 40-50% PA as consumer shop across brands. So, to grow at “growth business” rates (i.e. what was sold to investors in 2021) you can’t lose more than you add.

Client implication: If category customers don’t know who you are they can’t shop your brand. Having 5.5-6% of an online market makes you a niche player and declining new customer numbers and declining overall customer numbers require significant intervention. Beauty is a competitive category so gross margins are relatively fixed, so unless you can strip back opex and not impact service … a business like Adore needs to be much higher scale to offer investors any return. Scale needs more customers, customers need to be aware. Performance marketing overreliance always feels like a good idea, until it isn’t and your business is in decline with the only way to fix it requiring high levels of patience and investment. It's an important lesson to us all - neglecting brand health in order to pay for Google traffic will become terminal at some stage – it’s a ‘when’ not ‘if’ proposition.

Read more: Adore Beauty F23 investor presentation

3. FOR AUSTEREO, LISTNR IS ONLY 4% OF REVENUES, UNPROFITABLE AND NEEDS INFRA INVESTMENT TO REALLY GROW

What’s new: Austereo’s yearly results shone a light on the performance of the podcast business Listnr. It’s grown inventory and audience significantly (up 250%), but revenue is not growing at the same levels (up 36.2%). Listnr is losing Austereo $15.2 in 2023. Podcast’s remain a niche category for the ad market, hampered by a lack of reliable ad infrastructure and measurement.

Why it matters: Podcasting is just not popping in Australia with advertisers like it is with listeners and there’s a key reason - advertising infrastructure. Podcasting ad infrastructure is similar to digital 20 years ago. Fragmented, confusing and lacking any real standards or common currency. Radio networks domestically have been loathe to invest in this area as they’re reluctant generally to commit to long term capital investments.? But ad infrastructure needs high investment and Listnr as the local operator most likely to become the lead in this space has a strategic decision to make on whether it waits for someone else to solve it, or whether it spends the money to solve it.? Does it invest meaningfully or seek to make the business grow in its current less sophisticated technological iteration? Listnr needs to in my view. But if you read the SCA results that looks unlikely. There’s a whole slide in reduced CAPEX (down to 19.3m annually for the entire business) and 24 there’s an appetite to cut this even further. Building sophisticated ad infrastructure could be a $20-25m forward investment in the next 6-10 years of growth … and one that will lay the foundation for meaningful growth.

Client implication: Podcasts provide marketers with access to a valuable audience, in a high engagement context, surrounded by excellent talent. But the ad format needs to improve. Right now it’s become basically the same format radio has used since its inception – stacked 30s ads spliced in programming. There’s some live reads but these struggle to scale and are difficult when advertising is based on representation only and not production. It lacks the infrastructure of online video as well as the marketing and press push the networks embarked on almost a decade ago to promote the benefits of on demand video. Ultimately if the radio networks don’t invest in infrastructure (and only spend on talent and short term things) it’s unlikely the marketers and advertisers will move podcast advertising outside of the periphery test budgets and into the primary channel allocation.

Read more: SXL F23 investor presentation