This is the first of two articles about ASX listed outdoor advertising companies APN Outdoor Group Ltd (ASX: APO), oOh!Media Ltd (ASX: OML) and QMS Media Ltd (ASX: QMS).
Introduction
Outdoor advertising is a thriving industry, unlike other traditional forms of advertising such as print and television which are losing market share to online channels. The market grew by 17.2% in Australia and 11.9% in New Zealand in 2015, driven by ongoing population growth, urbanisation and people's increasing propensity to travel.
At the same time by switching to digital technology, operators are increasing the profitability of their sites. Digital billboards offer creative flexibility to media agencies, shorter lead-times, superior presentation and are more engaging for consumers. They also provide the opportunity for differentiated pricing depending on the time of day and allow operators to show multiple adverts on a daily basis.
Outdoor advertising operators are particularly exposed to the business cycle. They sign multi-year contracts with property owners but sell advertising space on a one-off basis. This means that their cost base is largely fixed whereas revenues will fluctuate based on advertising demand. The result is that profits rise much faster than revenues in good times, but can erode quickly when the cycle turns.
These factors along with stable economic conditions over recent years largely explain the strong rise in the share prices of all three ASX listed outdoor advertisers. Shares in APN are up 192.5% since listing in November 2014, oOh!Media's share price is up 179.1% since it listed in December 2014 and QMS shares have risen 73.7% since it debuted in July 2015.
Market positions & strategies
APN and oOh!Media are both much larger than QMS and each have a market share of about 30% of outdoor advertising spend in Australia versus less than 10% for QMS. All three companies also operate in New Zealand where APN and QMS each have more than 30% market share compared to about 6% for oOH!Media. QMS also has a presence in Indonesia where it provides advertising for three airports.
The industry can be split into segments including billboards, retail outlets, airports, buses, rail, street furniture and other places such as bars, gyms and cafés. Billboards make the largest revenue contribution for all three companies with APN the dominant player with revenues of $145 million in 2015.
APN is also strong in rail and buses, but its airport business is relatively small, contributing $33.1 million of revenue in 2015 compared to $54.5 million for oOh!Media. oOh! Media is the market leader in airport advertising and also for retail venues and QMS pretty much does a bit of everything including street furniture and print advertising.
All three companies are progressively switching their static signs over to digital ones and all currently generate around 30% of revenue from digital advertising. There is scope for significant profit growth for all three businesses from merely continuing this changeover to digital signage.
