Half.
Welcome to a midweek edition of Unmade. Today: The Unmade Index sinks below half of its opening value - in other words, Australia’s media companies have lost 50% of their value in just 29 months.
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The Unmade Index finally falls below 500
Yesterday, we hit a pretty grim milestone.
Since we started tracking the value of Australia’s media and marketing companies just over two years ago, their aggregate value has now halved.
From a nominal 1000 points when the Unmade Index launched at the start of 2022, yesterday it fell below 500 points for the first time, to 498.3 points.
As bear markets go, that’s bad. Probably unprecedented for the media sector. It was something we didn’t predict. Having bounced back from the panicky early months of Covid, our local media companies were enjoying what now looks like a final charge as the index started.
From the day the Unmade Index began, it never touched 1000 points again.
The way we produce the Unmade Index is weighted by the market capitalisation of the companies. For instance, a moderate move by Nine (currently worth $2.3bn) moves the index a lot; a big move by Motio ($4m) hardly at all.
As an aside, we include News Corp in our daily table of companies as an extra information point because it is dual listed in Sydney and New York. But because much of the business is overseas, it doesn’t feed into the index. And on our daily table, the value of News Corp is priced in US dollars because we haven’t been able to figure out how to make our Google Finance spreadsheet convert it to AUD.
We also downweight (if that’s a word) Domain to 40% so as not to count it twice in the index via Nine’s majority ownership.
When it comes down to it, any company’s market capitalisation is as assessment of market sentiment. A company’s share price is determined by what the market is willing to pay for it. Market cap is simply the share price multiplied by the number of shares issued.
The tangible part of that share price comes from the profits the company is producing, and the dividends it is paying to consumers. And the intangible part of what the market believes a company’s future prospects are.
As our graph above shows, in mid 2022, the market began to lose belief in the sector. From April to mid June the index fell from 950 points to just below 600. For the next year, it stayed broadly flat. And then, in February this year, as the advertising downturn began to look structural rather than cyclical, it began to fall again.
I have skin in the game too. Through my super fund, I own shares in every one of those companies (except for The Market Index whose governance I don’t trust). I mostly invested in 2023, so avoided the worst of the bloodbath... so far. I’m down about 7% overall. News Corp is my best performing stock (up 57% since I bought) Seven West Media is my worst (down 47%).
The performance of individual stocks since the index began is as much about the wider trends as it is about the performance of individual CEOs. In order of current market cap, this is how they’ve moved since the index began:
Of the larger stocks, Seven’s shareholders have had the worst of it, losing 69% of their money since the start of 2022. As the least diversified broadcast stock, that makes sense.
ARN Media (down 62%) and Southern Cross Austereo (down 60%) have also had a bad time of it. It’s possible that the ongoing speculation about mergers may also be shoring their prices up a little.
Meanwhile, Nine has lost 51% since the Unmade Index began. When the now embattled CEO Mike Sneesby took charge in 2021, the company had just topped a $5bn market capitalisation. Unless his departure comes in the next few days, there’s a chance he’ll be handing his successor a sub-$2bn company.
The bigger picture in all this is, of course, the digital platforms. Two decades ago, almost all advertising revenue landed with Australian-based companies. Now 80%, or maybe even a little more, is going overseas.
That’s a double hit for the local economy. The local companies shrink, and the tax take erodes, as the digital platforms send much of their profits offshore.
Time for a digital advertising levy?
Time to leave you to your day. We’ll be back with more tomorrow. In an audio-led edition, I’ll be talking to newly arrived Mutinex CEO Mat Baxter and founder Henry Innis.
Have a great day.
Toodlepip…
Tim Burrowes
Publisher - Unmade
tim@unmade.media