ITV share price forms a bullish divergence as ad revenue slumps

ITV (LON: ITV)  share price has struggled for months as investors react to the company’s weakening financial status. The stock plunged to a low of 65.16p on July 7, which was about 30% below the highest level this year. It is one of the worst-performing media companies in the UK.

Growth concerns remain

The media industry is rapidly changing as more people embrace video streaming platforms like Netflix, Max, and Disney+. The situation is accelerating more among young people who spend most of their time in social media platforms like Tik Tok and Instagram.

The decline of television is a global phenomenon, as I wrote here. In the US, there are rumours that Warner Bros and Disney are considering spinning off their TV business as their revenue struggle. Other TV players like Paramount could also reduce their exposure in the industry.

ITV is in a similar situation, which explains why the stock has moved into a deep bear market. Results published on Thursday showed that the company’s external revenue dropped by 2% in the period ending on June 30th. It came in at £1.638 billion as its advertising revenue retreated. 

ITV Studios revenue came in at £1 billion, up by 8% while its Media & Entertainment revenue tumbled by 9% to £964 million. As a result, its gross adjusted EBITDA came in at £152 million, which was about 52% below from the same period last year. EBITA was £133 million.

Despite these woes, ITV committed to paying a dividend of 5p. It expects to continue growing these payouts even as challenges in the company continues.

I believe that ITV is not a good investment for now because of the deteriorating advertising business. I also expect that its digital offerings will face pressure from other well-funded entities like Netflix and Disney. In a statement, the company’s CEO said:

“We remain on track to achieve all our KPI targets which gives us confidence we will deliver at least £750m of digital revenue by 2026. As we said at the full year results in March, 2023 is the year of peak net investment in our streaming business and we expect profit to grow from here.”

ITV share price forecast

ITV chart by TradingView

ITV stock price has been in a strong bearish trend in the past few months. This decline saw it settle at 65.16p on July 7th of this year. The stock is oscillating at the 25-day and 50-day moving averages.

At the same time, the Relative Strength Index (RSI) and the MACD indicators have formed a bullish divergence pattern. In technical analysis, this divergence is usually a positive sign. Therefore, there is a likelihood that the stock will rise as buyers target the key resistance point at 80p. In the long-term, the shares will likely resume the bearish trend.