Up 34% in 3 months, is the ITV share price primed to soar?

Over the years, I have not been a big fan of investing ITV (LSE:ITV) shares. Since 2015, the stock has been in a downward trend. Despite trying to stay relevant with new hit shows and reducing reliance on traditional advertising, the business isn’t impressing potential investors. But with the strong gains of the past few months, could it be a different start for ITV’s share price?

The November update strongly pushes the results

I have to wait until March to get the full year results for 2022. However, there is a new trading update for the nine months until the end of September.

There are a few things that I see as behind the rally in the stock. Not only was total external revenue up 6% compared to the same period last year, but non-advertising revenue was up 13%.

This is key because businesses have been trying to diversify away from their traditional reliance on advertising revenue for years. In this set of results, advertising revenue falls below 50% of the total figure.

Growth is evident for ITV Studios, the division involved in the production of its own brand of TV shows and films. This part of the business has struggled operationally during the pandemic, with restrictions on filming. However, a recent trading update notes that this arm will exceed 2019 profits in 2022, a strong statement.

Finally, momentum seems to be building with ITVX, the streaming service that went live in November. The rollout is going well. Business notes that the service should be “Europe’s largest free ad-funded premium streaming service by revenue.”

There are risks

Like all stocks, ITV always has risks. Despite a 34% gain in the past three months, the stock is down 31% in the past year. My concern is that the rise could be another short-term pop that will fade, with the longer-term trend still lower.

For example, advertising is a small part of the business, but it is still key for ITV. It fell 2% over 2021 and I think it will fall again in 2023 as businesses reduce marketing spending in order to cut costs in a tough economic environment.

Also, the move with ITVX to become a free but ad-funded streaming service could backfire. Customers may prefer paying monthly fees to other streaming providers, but they benefit from the absence of annoying ad breaks in the middle of movies. Only time will tell on this, but it’s an obvious risk I’m willing to take.

At 78p, ITV’s share price has plenty of room to move higher before hitting a 12-month high of 124p. It should have a leg up, but historical stock price performance suggests it won’t.

I would like to see a more convincing trend higher over a longer period of time before getting too excited here. I will check back at the end of Q1 with full year results to see if this is just another flash-in-the-pan.