Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
The advertising and data strategy behind Reach’s stellar share price gains
For a business involved in the tricky task of selling newspapers in what is certainly a dwindling market, readers may be surprised to know that media group Reach (RCH) has seen its share price rise eightfold in the past 12 months.
Key to its success has been strong growth in its digital interests and a resurgence in the advertising market.
Reach is a news and lifestyle-focused content company, driving revenues and profit from both digital and print audiences. The group is also the largest commercial UK regional and national news publisher by circulation volume, with titles including the Daily Express, OK and Daily Mirror.
The group targets digital display advertising and online classified spend. The Advertising Association forecasts 2021 growth of 17% and 11% for online display and classified advertising respectively.
The market appears to be becoming increasingly cognisant of Reach’s improving data analytics capability and its vast digital audience (42 million unique visitors) that have, until recently, escaped the attention of institutional investors.
According to ComScore, Reach’s existing UK digital audience represents the fifth largest digital asset base within the UK.
From the perspective of total unique visitors, Reach scores only behind Google, Facebook, Amazon and Microsoft sites, reaching 80% of the UK’s digital population.
Research by N+1 Singer analyst Caspar Erskine suggests that ‘digital revenues at the group could double over a four-year period provided the group executes successfully in further improving customer engagement and experience’.
IMPORTANCE OF USER ENGAGEMENT
Last December Reach launched an initiative that provided each registered user with a single ID connecting all their interactions across all Reach products.
The rationale for this initiative was twofold. First, improved content targeting. Second, deeper data analytic capability provides more granular profiling of the audience base.
Its latest half-year results revealed that unique users (registrations) had reached 6.7 million, an increase of 150% year on year and ahead of the group’s target of 10 million unique registered users by 2022.
Digital growth is predicated on driving user engagement and consequently improving advertising yields. A registered user consumes two to three times the amount of content compared to a non-registered customer. This is because Reach can more effectively target registered customers with content that resonates, through news for their local area. The revenue per user of a registered customer is three times that of a non-registered customer.
Management initiatives including the delivery of targeted content via personalised newsletters are already being reflected in monthly page views up 45% year on year, and page views per unique user by 40%.
Reach’s ‘inyourarea’ portal provides localised content to users based on their submitted postcode. Relevant local news, updates and other data is scraped from a multitude of sources in real time.
INCREASING THE ADVERTISING YIELD
If you compare the advertising yield of open market sold slots (such as through Google auctions) with a private marketplace (advertising space which is sold directly), the latter can be several hundred percent higher in yield.
The increasing scale and granularity of Reach’s digital data will enable it to engage in more private marketplace transactions, thereby securing a higher yield for advertising. A good example is the ‘inyourarea’ portal, which creates hyper local digital data that is immensely valuable to small and medium-sized businesses.
BLUE VENN PARTNERSHIP
In March 2021 Reach announced a strategic partnership with customer data platform BlueVenn. The media group’s customer information is pulled into a data cube that enables campaign analysis, customer targeting and cohort analysis.
For example, it will be able to help supermarkets to market to customers who haven’t signed up to a loyalty scheme. Reach can cross reference its data with a supermarket’s own data so as to have more targeted advertising.
It will also be able to target specific socio-economic groups and use postcode data to build an advertising campaign for a specific part of the country.
Reach’s growing array of digital products coupled with the scale and granularity of its data is becoming increasingly valuable to advertisers. Significantly the group is only just starting to reap the benefits of its investment in digital transformation.
This bodes well for future growth in an environment where data is becoming increasingly valuable. There is considerable scope to further monetise the group’s 42 million customer base.
The shares are no longer the absolute bargain they once were, trading on 11.1 times forecast earnings for the current financial year. A year ago, they were on a price to earnings multiple of 2.6.
Investors might argue that a 11.1 PE ratio is not expensive, however one must account for the newspaper side of the business which is an industry in terminal decline. It also used to be penalised by the market for having a very large pension deficit but that’s been brought down to £118.7 million.
Buying the shares at the current price would require taking the view that its digital growth will remain highly robust. Analysts have upgraded earnings on multiple occasions in the past year, meaning there is good momentum with the business and that has supported the share price growth.
While there is certainly a solid plan in place to capitalise on its data strength, one cannot ignore the fact that much of its content amounts to nothing more than ‘clickbait’ and low-quality journalism. That’s been a successful way to attract eyeballs and build up data on users, but is that a sustainable business model? There is certainly a lot to think about with this stock.