ITV's Q2 2025 Earnings: A Glimpse of Resilience or a Mirage? Assessing the Case for a Re-rating

In the second quarter of 2025, ITV, the UK's largest commercial broadcaster, delivered a mixed bag of results that have reignited debates about its valuation. The company reported a 31% drop in group adjusted EBITA to £146 million, a stark contrast to the £213 million achieved in the same period of 2024. This decline was largely attributable to the “Euros effect”—the 2024 Men's Euros soccer tournament had created an unusually high base for comparison, and the absence of a similar major sporting event in 2025 exacerbated the year-on-year challenges. Total group revenue fell 3% to £1.85 billion, with advertising revenue down 7% to £824 million.

Yet, amid the headwinds, ITV's strategic reforms and digital pivot have sparked optimism. Its ad-supported streaming service, ITVX, emerged as a standout performer, with digital ad revenue rising 12% year-on-year. Streaming hours surged by 15%, and monthly active users hit 16.4 million, up from 14.2 million in 2024. These metrics suggest that ITV is not just surviving the transition to streaming but adapting its business model to capitalize on it.

The Operational Turnaround: Cost-Cutting and Content Optimization

ITV's management has prioritized cost discipline as a cornerstone of its turnaround strategy. In Q2, the company announced an additional £15 million in non-content cost savings, bringing 2025's total savings to £45 million. While this required a one-off £40 million charge, the long-term benefits are clear: lower operating costs and improved cash flow. The company's 12-month profit-to-cash conversion rate of 109% underscores its ability to generate liquidity even in a challenging environment.

The Studios division, which accounts for roughly 35% of ITV's revenue, has also shown resilience. External revenue grew 11% to £632 million, driven by demand for scripted content from global platforms like Netflix and Disney+. However, internal revenue dropped 13% due to the absence of high-profile programs such as Saturday Night Takeaway and the Men's Euros coverage. This highlights a critical vulnerability: ITV's reliance on internal programming for a portion of its revenue.

Advertising Recovery: A Tale of Two Businesses

The Media & Entertainment (M&E) segment, which includes ITV's linear TV and streaming ad inventory, saw a 54% plunge in EBITA to £35 million. This was partly offset by digital gains, with ITVX's profitability already recouping its entire investment two years ahead of schedule. The platform's ability to attract younger audiences—critical for advertisers targeting Gen Z—positions ITV as a rare asset in a fragmented market.

However, the broader UK advertising landscape remains fragile. Total advertising revenue (TAR) fell 7% in Q2, reflecting the sector's struggles to recover from inflationary pressures and shifting consumer habits. ITV's 2% growth in digital ad revenue, while commendable, is modest against the backdrop of a £750 million target for 2026. The company's success in this area will hinge on its ability to expand its premium video ad offerings and leverage partnerships, such as the recent collaboration with YouTube and Sky.

Valuation and Market Sentiment: Undervalued or Overhyped?

ITV's stock currently trades at a P/E ratio of 7.18x, well below the communication services sector average of 11.81x. Analysts have assigned a “Buy” consensus rating, with a 30.98% upside to the current price of GBX 87.80. This premium is justified by the company's strong cash generation and strategic focus on digital transformation.

Yet, the valuation discount also reflects lingering doubts. The company's EBITA decline, coupled with expected profit volatility in the near term, has left investors wary. ITV's net debt of £586 million, up from £515 million at the end of 2024, adds another layer of risk. While the interim dividend of 1.7p per share (GBX 60 million payout) has been maintained, the full-year dividend of at least 5p hinges on the company's ability to deliver on its 2026 targets.

Strategic Risks and Opportunities

The key question for investors is whether ITV's operational improvements will translate into sustained profitability. The company's reliance on global streaming deals exposes it to content cost inflation and competition from giants like Netflix and Disney. Additionally, the absence of a major sports event in 2025—replacing the Euros—means ITV's ad revenue recovery may be slower than anticipated.

On the other hand, ITVX's growth trajectory is hard to ignore. With 26,000 hours of content and a user base expanding at a 9% annual rate, the platform is becoming a digital moat. The company's partnerships with YouTube and Disney+ also open avenues for cross-promotion and audience retention.

Investment Thesis: A Case for Caution and Confidence

ITV's shares appear undervalued based on traditional metrics, but the path to re-rating is not without hurdles. The company's cost-cutting measures and focus on digital advertising provide a solid foundation, but execution risks remain. For investors with a medium-term horizon, ITV offers an attractive entry point, particularly if the 2026 financial targets—such as £750 million in digital revenues—are met.

However, a “Buy” recommendation should be tempered with caution. The stock's beta of 1.38 indicates higher volatility, and the UK's macroeconomic climate could further pressure advertising spend. A better approach may be to adopt a staged investment strategy, allocating capital to ITV only after the second half of 2025 results confirm the sustainability of its turnaround.

In the end, ITV's story is one of transformation. Whether it will be the phoenix rising from the ashes of a struggling media giant or another casualty of the streaming wars depends on its ability to execute its strategy with precision—and luck. For now, the market's skepticism seems warranted, but the seeds of a re-rating have been sown.