Last week, LG Ad Solutions, the ad-tech division of South Korean electronics manufacturer LG Display Co., Ltd. (LPL) and Nielsen, a global leader in audience measurement, data and analytics, signed an agreement to create the largest automatic content recognition (ACR) data footprint in the United States.
LG Ad Solutions will provide Nielsen with ACR data for both linear and CTV measurement, offering enhanced stability for Nielsen National TV audience estimates. In addition, Nielsen will receive LG ACR data at the household level.
As a result of this agreement, advertisers activating campaigns on LG Smart TVs will have the opportunity to receive ‘Always On’ streaming measurement and big data from LG Ad Solutions through Nielsen ONE Ads beginning in the first quarter of 2024.
Under this arrangement, LG Ad Solutions joins previously announced Comcast, Vizio, Roku, Dish, and DirecTV deals, expanding Nielsen’s big data footprint to enable smarter decisions around linear campaign spend and optimization for customers. This deal also increases Nielsen’s CTV campaign coverage via direct integrations that leverage big data, joining Netflix, Sling, Samsung, Vizio, Amazon, Roku, and Hulu.
“Agencies and brands working with LG Ad Solutions can now seamlessly benefit from Nielsen ONE Ads measurement data and essential metrics, including co-viewing across millions of smart TVs and connected devices,” said Alistair Sutcliffe, Head of Product at LG Ad Solutions.
“This collaboration with Nielsen exemplifies our dedication to industry interoperability and underscores LG Ad Solutions’ strategy of fostering a forward-looking data approach with our strategic partners, prioritizing both consumers and advertisers for the overall benefit of the industry,” Sutcliffe added.
This strategic partnership announcement by LPL’s advertising arm, LG Ad Solutions, could positively impact the company’s share price in the near term. However, LPL’s shares have plunged approximately 10% over the past month and 25% over the past six months.
Now, let’s discuss the factors that could impact LPL’s performance in the upcoming months:
Favorable Recent Developments
On September 24, LPL announced mass-production of the 17-inch Foldable OLED panel for laptops. The company’s 17-inch Foldable OLED panel features a Tandem OLED structure for increased lifespan suitable for IT devices and a specialized material that minimizes creasing in the folding area of the screen, resulting in a seamless display and crystal-clear picture quality.
The panel also incorporates QHD+ resolution (2560 X 1920) on its 17-inch large screen and boasts an infinite contrast ratio unique to OLED technology, ensuring high-definition content. LPL intends to solidify its technology leadership in the OLED business for the IT industry, expanding its orders based on differentiated technologies like Tandem OLED and unique folding structures.
On June 26, LPL announced that its OLED TV and monitor panels earned the ‘Circadian Friendly’ certification from TÜV Rheinland, a global independent testing, inspection and certification body. The company’s industry-leading OLED panels have become the first displays to receive this certification, marking a groundbreaking achievement for the industry.
Deteriorating Financial Performance
For the third quarter that ended September 30, 2023, LPL’s revenue came in at KRW 4.79 trillion ($3.55 billion), down 29.3% from the prior year’s quarter. The company’s revenue also failed to surpass the consensus estimate of $3.98 billion. It recorded an operating loss of KRW 662 billion ($490.03 million) for the quarter.
In addition, the company’s adjusted EBITDA profit was KRW 382 billion ($282.77 million), a decline of 2.3% year-over-year. Its net loss came in at KRW 775 billion ($573.68 million), compared with the net loss of KRW 774 billion ($572.94 million) in the same period of 2022. Also, the company reported a loss per share of KRW 2,167, compared to KRW 2,163 in the previous year’s quarter.
Mixed Historical Growth
LPL’s revenue and total assets have grown at respective CAGRs of 1.4% and 2.2% over the past three years. However, the company’s EBITDA has declined 51.7% over the same timeframe.
Delays In Full Recovery of Demand
During the third quarter, LG Display experienced a delay in full recovery of demand for personal computers (PCs), TVs, and mobile phones due to several macroeconomic uncertainties and inventory adjustments continuing in downstream industries, resulting in disappointing financial performance.
According to Counterpoint Research, global smartphone shipments in 2023 are projected to decline 6% year-over-year to 1.15 billion devices, marking the worst performance in a decade amidst sluggish consumer demand.
Meanwhile, as per preliminary results by Gartner, Inc., Worldwide PC shipments totaled 64.3 million units in the third quarter of 2023, down 9% from the third quarter of 2022. While the third quarter’s results represent the eighth straight quarter of decline for the global PC market, Gartner expects the market to begin recovery in the fourth quarter of this year.
Further, Gartner projects 4.9% growth for the global PC market in 2024, with growth expected in both the business and consumer segments.
Management Hints at a Potential Turnaround
After posting losses for six consecutive quarters, hit by continued weakness in demand and excess inventory, LPL expects a return to profit in the fourth quarter. The company is accelerating the reorganization of its business structure and steadily improving profitability by implementing cost innovation.
“We expect to achieve a turnaround in profit in the fourth quarter as excessive panel inventory adjustments are eased in downstream industries and panel shipments for mid- and large-sized OLEDs and new mobile devices increase to meet year-end seasonal demand,” said Sung-Hyun Kim, CFO and Senior Vice President at LG Display.
Jeff Kim, head of research at KB Securities, said, “LG Display made it clear it will turn to profit. The market is recognizing that there will be no further deterioration.”
“We expect LG Display to supply small-to-midsized OLED for about 55 million devices this year, and about half will go out in the fourth quarter. Although iPhone 15 demand is a bit sluggish, LG Display only supplies high-end models, and the iPhone 15 Pro and Pro Max are seeing comparatively solid demand,” Jeff Kim added.
Mixed Analyst Estimates
Analysts expect LPL’s revenue to decline 15.2% year-over-year to $5.04 billion for the fourth quarter ending December 2023. The company is expected to report a loss per share of $0.06 for the ongoing quarter. Moreover, it missed the consensus revenue and EPS estimates in all four trailing quarters.
Furthermore, Street expects LPL’s revenue for the fiscal year 2023 to decrease 28% year-over-year to $15.31 billion. The company is also estimated to report losses for at least two fiscal years. However, for the fiscal year 2024, analysts expect its revenue to grow 19.9% from the previous year to $18.36 billion.
LPL has struggled over the past few quarters due to weakness in demand stemming from a global economic slowdown and excessive inventory levels. However, the company recently hinted at a return to profit in the current quarter with cost innovation and reorganization of its business structure.
But analysts don’t seem convinced by the company’s optimistic comments and continue to have a bleak short-term outlook. Given its poor financials and weak near-term prospects, the stock could be best avoided now.