Caixin
Aug 22, 2019 08:45 PM
BUSINESS & TECH

Weak Ad Market Slams Advertising Bellwether Focus Media

Outdoor advertising specialist Focus Media said its revenue sagged and profit plunged in the first half of the year, as the industry veteran faced twin headwinds from a weak advertising market and stiff competition from an aggressive rival.

Investors greeted the latest report by bidding up Focus’ shares 3.8% in Thursday trade in Shenzhen. But even after that rally, the stock is still down about 27% from a peak in late April, as investors worry about broader weakness in China’s advertising market — especially among the new economy high-tech clients that are Focus’ biggest single group.

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Focus Media Information Technology Co. Ltd.’s revenue fell 19.6% to 5.7 billion yuan ($804 million) in the first six months of the year, while its profit tumbled 76.8% to 778 million yuan, according to its latest report. That was in line with the low end of a forecast from Guosen Securities, which had expected the company to report a profit between 740 million yuan and 1.1 billion yuan. Data from online finance site Hithink RoyalFlush showed the company’s revenue for the second quarter fell 25% to about 3.1 billion yuan, while its profit fell 77.6% to 484 million yuan.

Focus, which operates a network of video and display ads mostly based in office, apartment and retail buildings, attributed the weak performance partly to softness in China’s ad market.

China’s advertising spending fell 8.8% in first half of the year, even as spending on elevator video and elevator display advertisements rose 4.1% and 6.2%, respectively, according to CTR Market Research. But spending by mobile app and service customers on elevator video advertisements fell 27.1%, and such advertising for elevator displays fell 9.1% over the six months, the report showed.

Such new economy, high-tech spenders make up the biggest single portion of Focus Media’s clientele. The company’s revenue from internet industry clients tumbled 57% in the six-month period, taking that segment from 41% of Focus’ total revenue a year earlier to just 22% in the latest period. The decline was driven by a worsening environment for capital-raising by such companies, with the result that they are spending less on advertising, according to an analyst at investment bank CICC.

At the same time, costs associate with an aggressive expansion to its network of elevator-based advertisements starting in last year’s second quarter also took a toll, as Focus fended off a challenge from younger rival XinChao. Focus has recently moved to rein in costs and has been cutting underperforming employees, in a campaign that will continue through the end of the year, a company insider told Caixin. A price war with XinChao has also hurt its profitability, the person added.

Focus released its report just days after leading online search engine Baidu Inc. also reported weakness in its core advertising business. Baidu reported earlier this week that its online marketing revenue — accounting for about three-quarters of its total — fell 9% in this year’s second quarter. It predicted further weakness in the current quarter.

Contact reporter Yang Ge (geyang@caixin.com; Twitter: @youngchinabiz)

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