Nexstar Media's Q1 Results: Navigating Headwinds with a Focus on Long-Term Growth

Nexstar Media Group (NASDAQ: NXST) reported its Q1 2025 earnings, delivering a mixed performance that underscores both the challenges facing traditional media and the company’s strategic resilience. While revenue declined year-over-year, key metrics such as distribution growth, dividend hikes, and disciplined capital allocation suggest Nexstar remains positioned to capitalize on future opportunities, particularly as it eyes the 2026 political advertising cycle and expands its programming footprint.

Revenue Dynamics: Political Ads and Distribution Resilience

Nexstar’s Q1 net revenue of $1.23 billion marked a 3.9% decline from Q1 2024, driven by a sharp drop in political advertising revenue. Political ad revenue plummeted from $38 million to just $6 million, reflecting the absence of major elections in the first quarter of 2025 compared to 2024. Non-political advertising also weakened, falling by $20 million due to “market softness,” a recurring theme in ad-driven industries.

However, distribution revenue reached a record $762 million, up 0.1% year-over-year. This modest growth masks significant underlying drivers: contractual rate escalators, gains in vMVPD (virtual distributor) subscribers, and the addition of CW affiliations. Notably, these gains offset traditional MVPD (cable/satellite) subscriber attrition, a trend reflective of the broader shift in media consumption. Nexstar’s distribution business continues to act as a stabilizing force, though its growth is constrained by legacy platform declines.

Profitability Pressures and Margin Challenges

Net income fell sharply to $97 million, a 41.9% drop from $167 million in Q1 2024. This decline was amplified by the loss of a $40 million non-recurring gain from the sale of an interest in BMI (Broadcast Music, Inc.) in 2024, as well as higher amortization costs tied to expanded sports programming at The CW. Adjusted EBITDA declined 15.7% to $381 million, with margins compressing to 30.9% from 35.2% a year ago—a clear sign of margin pressure from rising content costs.

Despite these headwinds, Nexstar’s operating cash flow surged 22.1% to $337 million, driven by working capital improvements. However, adjusted free cash flow dipped 10.5% to $348 million, reflecting reduced operating contributions and the absence of partner cash injections from The CW.

Strategic Moves and Capital Allocation Priorities

Nexstar’s management demonstrated discipline in capital allocation, balancing growth and shareholder returns:
- Debt Reduction: Repaid $31 million of its $6.5 billion debt load, signaling financial prudence.
- Strategic Acquisitions: Purchased WBNX-TV/TV55 in Cleveland for $22 million, securing a CW affiliate in the 19th-largest U.S. market. This move expands Nexstar’s reach into a key demographic area.
- Dividend Growth: Increased the dividend by 10% to $1.86 per share, maintaining its 12-year streak of annual hikes. The 4.8% yield now ranks among the highest in the media sector.
- Share Buybacks: Repurchased $75 million in shares, reflecting confidence in undervalued stock.

CEO Perry Sook emphasized 2025 priorities: renewing 60% of distribution contracts, boosting The CW’s profitability through sports programming (e.g., NASCAR Xfinity viewership +19%, WWE NXT +19%), and preparing for the 2026 political cycle. These initiatives align with Nexstar’s core strengths: local broadcast dominance and network partnerships.

Risks and Opportunities Ahead

The company faces headwinds:
1. Advertising Softness: Non-political ad revenue remains vulnerable to economic uncertainty.
2. Programming Costs: The CW’s sports investments, while growth-oriented, require careful cost management.
3. Regulatory Risks: Deregulation could open new opportunities, but shifts in media policy pose unpredictability.

However, Nexstar’s balance sheet provides a buffer. With $348 million in adjusted free cash flow and a focus on debt reduction, the company is well-positioned to weather near-term challenges. The 2026 political cycle—a potential $500+ million revenue boost—could be a major catalyst, similar to the $32 million political ad revenue seen in Q1 2024.

Conclusion: A Buy for Long-Term Value

Nexstar’s Q1 results highlight a company navigating cyclical pressures while investing in sustainable growth. The dividend hike, disciplined buybacks, and strategic acquisitions (e.g., CW affiliations) reflect management’s focus on shareholder value. While short-term profitability faces margin headwinds, the company’s strong cash flow and distribution resilience position it to outperform in the 2026 cycle.

Investors should note that Nexstar trades at a forward P/E of 9.2x, well below the sector average of 14x, suggesting undervaluation. Combined with its 4.8% dividend yield and a $348 million adjusted free cash flow run rate, the stock offers asymmetric upside for those willing to look past near-term ad softness. Nexstar’s long-term story hinges on executing its CW expansion and capturing political tailwinds—two areas where management has historically excelled. For value investors, this is a compelling entry point.