Focus Media set for strong sales as advertisers tap into lower-tier cities
A year after Sina's US$1.4 billion deal to buy its core assets collapsed, mainland digital advertising network operator Focus Media is banking on tweaks in its operation and robust consumer spending across the country to help shore up its revenue.
Shanghai-based Focus Media, which operates the mainland's largest out-of-home audiovisual digital display advertising network, could be poised for strong sales next year, according to analysts.
'With the management team focusing on the core businesses and no plans for large acquisitions, we expect the company to register strong cash flow growth,' analysts at JPMorgan Asia-Pacific Equity Research said in a report.
Focus Media is expected to generate healthy demand from consumer products advertisers and capture faster advertising market growth in lower-tier cities on the mainland. The Nasdaq-listed firm's outdoor digital display advertising network spans more than 90 cities, while its in-store flat-panel display network covers 160 cities. It is also a leading provider of movie-theatre screen advertising.
JPMorgan analysts forecast Focus Media will report revenue of US$583.4 million next year from an estimated US$561.7 million this year. The mainland firm's two biggest market segments are fast-moving consumer goods (FMCG) advertising, which contributes 41 per cent to total sales, and transport-related advertising, with contributions of 30 per cent.
Efforts by Focus Media to reclassify some of its premier office building advertising channels on its networkA to the lower-priced networkB are also expected to boost turnover. JPMorgan analysts said the Bnetwork had historically been perceived to be of better quality, which had resulted in it typically having around 60 per cent advertising usage.
Citigroup analyst Alicia Yap said the reclassification and adjusted networkB pricing, which was 30 per cent below networkA, would by January next year 'encourage advertisers, especially FMCG customers, to migrate more [advertising spending] allocation to networkB'.
Focus Media secured a US$1.4 billion deal to sell off its core assets to Sina in December 2008. But the Ministry of Commerce repeatedly put off a merger review. The deal fell apart when no government approval was received by September 30.
