|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
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. Lamar took in $1.12B in revenues in 2006, mostly coming from advertising revenues. Having ridden the wave of consolidation in the outdoor industry to become the number three player in the U.S. industry--85% of domestic outdoor revenues are 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.
The recent innovation of digital signs is set to help make the outdoor industry more competitive with other forms of advertising such as newspaper, radio, and Internet by slashing operating costs and allowing for much faster display changes and demographic targeting. As of the end of 2006, 300 of Lamar's over 270,000 displays were digital, generating approximately 2% of revenue in that year.
[edit] Business Overview
Lamar has been around since 1902 and today, the company derives its revenues from the sale of ad space on the over 270,000 outdoor advertising displays in the US, Canada, and Puerto Rico. Lamar currently focuses on on small- to mid-size markets where it can more easily attain a larger market share.
The company sells advertising 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, bulletin billboards generated a disproportionately high amount of revenue compared to posters. While about half of the company's billboards are bulletins (78,000 vs. 73,000 posters), about 74% of all billboard advertising net revenues came from the large format medium. In addition, profits margins on bulletins are generally higher. Lamar has been rolling out digital billboards to complement its traditional ones, ending 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 through competitive bidding processes. The company has 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.
[edit] Competitive Landscape
[edit] Consolidated Industry
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, making market entry difficult and giving current players pricing power. The growth of profit margins among the top players reflects the returns to scale in the outdoor industry because of consolidation. However, while there is little room left for further consolidation or organic growth in the constrained market, the rollout of digital signs may continue to increase operation efficiencies.
[edit] Lamar's Competitive Position
Lamar is the number three player overall and the number one pure-play outdoor advertiser. Because Lamar focuses on small and mid-sized markets and competes less 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 produced consistently higher profit margins--over 16% in 2006--than its top competitor, Clear Channel Outdoor (CCO), which realized operating margins of about 15% last year. However, these numbers look very different when disaggregating by international versus domestic operations. CCO derives over half of its revenues from its International segment, where its margins are razor thin, while margins in its Americas segment (with 94% of revenues coming from the lucrative U.S. market) grew from 24% in 2004 to 31% in 2006.
Lamar does not report its revenues by geographic source or by product source as CCO does. However, since the company generates all of its revenues from the Americas--most of which comes from the U.S.--it can be assumed that Lamar's overall margins are far below CCO's Americas segment operating margins. This may be due to a different product mix (billboard margins are the highest of all), increased expenditures on new digital signs and contract renewals costs, Lamar's focus on smaller markets, and the cost advantages of CCO's greater scale.
[edit] Competing for Advertising Spend
In addition to industry competitors, outdoor advertisers compete for advertiser dollars against 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 may be room for growth as outdoor grabs advertising expenditure market share from other forms of media. As a basis of comparison, outdoor advertising has only about a 2% share of total domestic advertising revenues, significantly lower than in many other countries. Outdoor comprises 12% of total advertising spending in France, 10% in the UK, and 8% in Spain.
One trend that would benefit all outdoor advertising companies is the potential increase in prices for this channel:
- Given the few competitors in the space, outdoor advertising companies have pricing power
- 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. In comparison, media channels such as network TV have CPMs closer to $25
- With the addition of digital signs and more accurate measurements of advertising efficiency, outdoor advertising may become even more attractive for advertisers.
[edit] Competitive Metrics
| Rank | 2006 Revenues ($B) | 2006 Operating Margins | 2006 Total Displays | 2006 Digital Displays | |
|---|---|---|---|---|---|
| CCO | 1 | $2.90 | 15.30% | 870,000 | 50 |
| CBS | 2 | $2.10 | 16.70% | n/a | n/a |
| LAMR | 3 | $1.12 | 16.90% | 270,000 | 300 |
[edit] Business Drivers
[edit] 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. While digital outdoor advertising typically requires a higher initial investment for 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 the standard labor-intensive on-site visits. Messages can also be more targeted; for instance, ads can be changed at different times of the day (a practice common in television called "day-parting") as well as instantaneously updated for price changes. These innovations have the potential for advertising companies to maximize advertising slots and hence, sales revenue.
The ability to update ad displays quickly and frequently may 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 to attract different types of advertisers to outdoor advertising as well as to increase display utilization rates.
Lamar had about 300 digital displays installed in the US and Canada by the end of 2006 and accounted for 2% of Lamar's revenues that year. Clear Channel Outdoor, on the other hand, finished the year with 50 digital displays. The main obstacles to the rapid deployment of digital displays for all outdoor advertising companies are:
- The need to gain approval from local and state officials (there have been objections that digital displays distract drivers
- Supply bottlenecks caused by a need for greater digital display production capacity.
[edit] 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.
[edit] Business Cycles
Lamar's main source of revenue, advertising, is highly correlated with and sensitive to GDP growth and decline. 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 particular, 9% of LAMR's revenues from from real estate advertisers, which makes the company vulnerable to slowdowns in the U.S. Housing Market.
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.
[edit] Advertising Metrics
Customers seeking to get the most bang out of each buck into advertising want measures of the relative "impact" of their ads and make decisions about where to place their money based on metrics that help determine the cost per thousand impressions (or CPMs). Currently, advertisers buy outdoor display space based on traffic counts provided by the Traffic Audit Bureau, which measure gross exposure to a particular display but do not measure active viewing; thus this metric serves as only a rough measure of actual outdoor displays' advertising impact on their audience. This kind of impact measurement is similar to newspapers and television stations, which counts gross circulation or viewer numbers. Internet advertising, on the other hand, has the ability to yield superior measurement detail provided by audience metrics such as click-through rates, impressions, conversions and other metrics.
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 and bring it closer to the measurement provided by the Internet.
[edit] Regulation and Government
The outdoor advertising industry owes its profits in good measure to the 1965 Highway Beautification Act, regulates the locations of outdoor displays in the U.S. Limitations of billboard placement to major U.S. highways and industrial areas has created large barriers for new entrants into the highly consolidated market, leading to high profit margins (unlike Europe, where it is less regulated). On the other hand, four states--Vermont, Alaska, Hawaii, and Maine--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. Digital billboards may be regulated in the future 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.
[edit] References
| ||||||
|
|
