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==Business Overview== ==Business Overview==
-[[Image:LAMR.Revenues_&_Margins.GIF|right]]+[[Image:LAMR.Revenues_&_Margins.GIF|thumb|400px|right]]
Around under its current name since since 1902, Lamar derives its revenues from the sale of ad space on the over 270,000 outdoor advertising displays in the US, Canada, and Puerto Rico. The company currently focuses on on small to mid-size markets where it can more easily attain a larger market share. Around under its current name since since 1902, Lamar derives its revenues from the sale of ad space on the over 270,000 outdoor advertising displays in the US, Canada, and Puerto Rico. The company currently focuses on on small to mid-size markets where it can more easily attain a larger market share.
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==Competitors== ==Competitors==
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According to the Outdoor Advertising Association of America (OAAA), there were over 565 companies in the outdoor advertising industry operating over 850,000 outdoor displays as of December 31, 2004. Nevertheless, the domestic outdoor advertising industry is highly consolidated, with a few large companies operating in multiple markets and the rest operating a limited number of displays in a handful of markets. The top three players--[[Clear Channel Outdoor Holdings (CCO)|Clear Channel Outdoor]] , CBS (through its CBS Outdoor division), and Lamar Advertising--together take in over 85% of industry revenues. The Highway Beautification Act of 1965 limits the number of new billboards that can be built and makes market entry difficult, giving current market players pricing power. According to the Outdoor Advertising Association of America (OAAA), there were over 565 companies in the outdoor advertising industry operating over 850,000 outdoor displays as of December 31, 2004. Nevertheless, the domestic outdoor advertising industry is highly consolidated, with a few large companies operating in multiple markets and the rest operating a limited number of displays in a handful of markets. The top three players--[[Clear Channel Outdoor Holdings (CCO)|Clear Channel Outdoor]] , CBS (through its CBS Outdoor division), and Lamar Advertising--together take in over 85% of industry revenues. The Highway Beautification Act of 1965 limits the number of new billboards that can be built and makes market entry difficult, giving current market players pricing power.
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Lamar has consistently higher profit margins than its top competitor, Clear Channel Outdoor. However, these numbers may be a bit misleading. CCO derives over half of its revenues from its international operations, where its margins are razor thin. Though Lamar derives almost all of its revenues from the lucrative U.S market, its overall margins are far from CCO's Americas segment operating margins (which grew from 24% in 2004 to 31% in 2006). Lamar has consistently higher profit margins than its top competitor, Clear Channel Outdoor. However, these numbers may be a bit misleading. CCO derives over half of its revenues from its international operations, where its margins are razor thin. Though Lamar derives almost all of its revenues from the lucrative U.S market, its overall margins are far from CCO's Americas segment operating margins (which grew from 24% in 2004 to 31% in 2006).
-[[Image:Outdoor_Expenditures.GIF|right]]+[[Image:Outdoor_Expenditures.GIF|thumb|400px|right]]
In addition to other outdoor companies, outdoor advertisers compete with other media such as television, radio, the Internet, and newspapers. According to the Outdoor Advertising Association of America, outdoor advertising revenues in the United States increased 7% per year over the past decade. While the domestic supply of billboards cannot increase significantly in the near future barring an unlikely easing of regulations, there is still much room for growth as outdoor grabs advertising expenditure market share from other forms of media. In addition to other outdoor companies, outdoor advertisers compete with other media such as television, radio, the Internet, and newspapers. According to the Outdoor Advertising Association of America, outdoor advertising revenues in the United States increased 7% per year over the past decade. While the domestic supply of billboards cannot increase significantly in the near future barring an unlikely easing of regulations, there is still much room for growth as outdoor grabs advertising expenditure market share from other forms of media.

Revision as of 18:18, July 23, 2007

Lamar Advertising Company (NASDAQ:LAMR) is an outdoor advertising company, operating billboards, logo signs, and transit displays in the U.S., Canada, and Puerto Rico. Having ridden the wave of consolidation in the outdoor industry to become the number three player in the U.S. industry, with 85% of domestic outdoor revenues already in the hands of the top three companies, Lamar is running out of attractive acquisition targets and may have to focus on organic growth or international expansion. Fortunately, the recent innovation of digital signs is set to help make the outdoor industry more competitive with other forms of advertising by slashing operating costs and allowing for much faster display changes and demographic targeting. As of the end of last year, 300 of Lamar's over 270,000 displays were digital.

In 2006, Lamar took in $1.12B in revenues. The company has a market capitalization of $6.08B.

Business Overview

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Around under its current name since since 1902, Lamar derives its revenues from the sale of ad space on the over 270,000 outdoor advertising displays in the US, Canada, and Puerto Rico. The company currently focuses on on small to mid-size markets where it can more easily attain a larger market share.

The company sells space on three types of displays: billboards, logo signs and transit displays.

  • Billboards are large illuminated ads located on major highways targeting traffic (bulletins) or smaller ads placed on main arteries of commercial areas (posters). Lamar owns and operates over 151,000 billboard advertising displays in 44 states, Canada and Puerto Rico. In 2006, 74% billboard advertising net revenues were derived from sales of space on Lamar's over 78,000 bulletins, while 26% were derived from sales of space on over 73,000 posters. Profits margins on bulletins are generally higher. In addition to traditional billboards, the company is rolling out digital billboards, finishing 2006 with 300 billboards located in 34 states and Canada.
  • Logo signs are highway signs that direct traffic to nearby attractions such as food, gas, camping, and lodging. Lamar operates 19 of 24 privatized U.S. state logo contracts won in competitive bidding processes, with over over 95,000 logo advertising displays in 19 states as well as Ontario, Canada.
  • Transit displays are ad displays on the exterior and interior of public transportation vehicles, transit shelters, and benches. Lamar operates over 31,000 transit displays in 16 states, Canada, and Puerto Rico.

Competitors

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According to the Outdoor Advertising Association of America (OAAA), there were over 565 companies in the outdoor advertising industry operating over 850,000 outdoor displays as of December 31, 2004. Nevertheless, the domestic outdoor advertising industry is highly consolidated, with a few large companies operating in multiple markets and the rest operating a limited number of displays in a handful of markets. The top three players--Clear Channel Outdoor , CBS (through its CBS Outdoor division), and Lamar Advertising--together take in over 85% of industry revenues. The Highway Beautification Act of 1965 limits the number of new billboards that can be built and makes market entry difficult, giving current market players pricing power.

Lamar is the number three player and the number one pure-play outdoor advertiser. Because Lamar focuses on small and mid-sized markets and does not compete as much in large markets, the company derives about 90% of its revenue from markets where it has at least an 80% share of the outdoor advertising market.

Lamar has consistently higher profit margins than its top competitor, Clear Channel Outdoor. However, these numbers may be a bit misleading. CCO derives over half of its revenues from its international operations, where its margins are razor thin. Though Lamar derives almost all of its revenues from the lucrative U.S market, its overall margins are far from CCO's Americas segment operating margins (which grew from 24% in 2004 to 31% in 2006).

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In addition to other outdoor companies, outdoor advertisers compete with other media such as television, radio, the Internet, and newspapers. According to the Outdoor Advertising Association of America, outdoor advertising revenues in the United States increased 7% per year over the past decade. While the domestic supply of billboards cannot increase significantly in the near future barring an unlikely easing of regulations, there is still much room for growth as outdoor grabs advertising expenditure market share from other forms of media. Outdoor advertising has only about a 2% share of total domestic advertising revenues, significantly lower than in many other countries. By comparison, outdoor comprises 12% of total advertising spending in France, 10% in the UK, and 8% in Spain. Outdoor advertising boasts substantially lower costs per thousand impressions (CPMs) for its advertisers than competing media, with outdoor display CPMs ranging on average between $1.50-$5.00, while media like network TV have CPMs close to $25. With the addition of digital signs and more accurate measurements, outdoor advertising is due to become even more attractive.

Business Drivers

Digital Signage

Recently introduced digital signs have the potential to make big waves in the outdoor advertising industry. LED and LCD digital displays allow for for higher quality, faster time to market, and better customer targeting. They also promise to significantly cut costs. For a higher initial investment in the displays, digital displays will cut industry operating expenses by allowing outdoor advertising companies to update displays at the click of a button rather than through regular and labor-intensive on-site visits. Messages can also be changed at different times of the day as well as instantaneously updated for price changes.

The ability to update ad displays quickly and frequently will herald a transition from a business model based on selling display space to one based on selling time on multiple displays. It also has the potential attract more types of advertisers to outdoor advertising as well as to increase display utilization rates. In addition, with the new innovation outdoor advertisers are likely to begin following the lead of television advertisers in maximizing revenues by "day-parting" their advertising slots and rates for different times during the day.

Lamar had about 300 digital displays installed in the US and Canada by the end of 2006, while Clear Channel Outdoor finished the year with only 50 digital displays. Digital displays accounted for 2% of Lamar's 2006 revenues. The main obstacles to the rapid deployment of digital displays are 1) the need to gain approval from local and state officials who object that digital displays distract drivers and 2) supply bottlenecks caused by a need for greater digital display producer capacity.

Commuting Habits

Lamar generates much of its revenues from billboards placed along the highway, and ad rates for these billboards are determined by the amount of traffic that passes by them. Increasing traffic volume and drive times are Lamar's key growth drivers. Thanks to urban sprawl, the search for cheaper housing outside of major metropolitan areas, and America's love of cars, commuters are spending more time in their cars than ever before.

Business Cycles

Lamar's main source of revenue, advertising, is highly correlated with and sensitive to GDP growth. Small downturns in the economic performance lead to disproportionately large overall declines in ad spending, while ad spending tends to increase sharply during boom times.

In addition, revenues in the outdoor advertising industry are highly seasonal, following consumer spending trends. Lamar typically has its strongest performance in 3Q and 4Q, with its weakest performance in the first quarter, partly because retailer advertising is cut back after the holiday shopping season.

Advertising Metrics

Lamar's advertising rates are based on a measure of the relative impact of its displays. Currently, advertisers buy outdoor display space based on traffic counts, which measure gross exposure to a particular display but do not measure active viewing. However, a new system being rolled out that would provide advertisers with a more accurate measure of impact has the potential to attract more advertisers and more money from existing advertisers. The Traffic Audit Bureau, which measures traffic circulation, will begin providing not only demographic data but also "eyes-on" data that would allow advertisers to know who is actually viewing their ads. This greater amount of detail may make outdoor advertising more competitive vis-a-vis traditional media, which measure their advertising impact in terms of gross exposure.

Regulation and Government

The outdoor advertising industry owes its profits in good measure to the 1965 Highway Beautification Act, which limited billboards to major U.S. highways and industrial areas regulates the locations of outdoor displays in the U.S. The limit on billboard placement has created large barriers for new entrants into the highly consolidated market, leading to high billboard profit margins that analysts and companies alike agree would not exist under more competitive conditions such as those seen in Europe. On the other hand, some states have banned billboards altogether.

U.S. federal, state and local regulations play an important role in shaping the outdoor advertising industry, and any changes could make a significant financial impact on Lamar. In the future, digital billboards may be regulated because of their brightness or power to distract highway drivers. In addition, several jurisdictions in and outside of the U.S. have imposed taxes on gross receipts of outdoor advertising revenues, and new jurisdictions may also seek to do so.

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