- Subscription revenue up 7% YoY, led by Zee5 turning EBITDA positive.
- Advertising down 9% YoY but up 6% QoQ; recovery hinges on FMCG spending and GST cuts.
- Linear TV gained 60 basis points in market share, a rare upside in a shrinking segment.
- ICICI Securities maintains a BUY with a revised target of INR 120, implying an 18x FY27 forward P/E.
- Key risks: slower ad/subscription rebound and lagging cost‑optimization execution.
You missed Zee’s subscription bounce because you were watching the ad decline.
In Q3FY26 Zee Entertainment Enterprises (ZEE) delivered a mixed but intriguing set of numbers. While advertising revenue slipped 9% YoY, the company posted a 7% YoY rise in subscription revenue, driven primarily by the streaming arm Zee5, which finally turned EBITDA positive at INR 564 million. Linear television added a modest 60‑basis‑point market‑share gain, a bright spot in an otherwise soft broadcast environment. The research house ICICI Securities still rates the stock a BUY, trimming its target price to INR 120 based on an 18× forward P/E for FY27, but flags advertising recovery as the linchpin for a meaningful re‑rating.
Zee Entertainment’s Subscription Upswing Beats Market Weakness
Subscription revenue grew 7% YoY, a pace that outstripped the broader Indian streaming sector, which has been choked by price‑sensitive consumers and intense competition. The catalyst was two‑fold: Zee5’s strategic pricing and content refresh, and the renewal of B2B broadcast contracts that added a steady cash flow. More importantly, Zee5 posted a positive EBITDA of INR 564 million, marking the first quarter it generated operating profit. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a key profitability metric that strips out non‑operating costs, giving investors a clearer view of core earnings.
This shift suggests that Zee’s hybrid model—mixing ad‑supported and subscription tiers—may finally be reaching scale economies. The subscription base now contributes a larger slice of total revenue, cushioning the company against volatile ad spend.
Advertising Revenue Dip and the Road to Recovery
Advertising revenue fell 9% YoY, reflecting persistent softness in FMCG (Fast‑Moving Consumer Goods) advertising, which traditionally commands the bulk of TV ad spend. However, the quarter showed a 6% QoQ improvement, indicating early signs of a bottoming‑out. Management attributes the gradual recovery to two policy levers: a reduction in GST (Goods and Services Tax) on advertising services and a renewed push by FMCG brands toward brand‑building activities after a prolonged focus on cost‑cutting.
Investors should monitor the GST impact closely. A lower tax rate directly improves net ad spend, raising the effective CPM (Cost Per Mille) for broadcasters. If FMCG firms accelerate their promotional cycles, Zee could see a compounding effect—higher ad volume paired with better pricing power.
Cost Optimisation and Margin Pressure
Zee’s management has pledged a disciplined cost‑optimization program aimed at trimming SG&A (Selling, General & Administrative) expenses. The target is to improve EBIT (Earnings Before Interest and Taxes) margins by 150 basis points over the next 12 months. Achieving this will require tighter control over content acquisition costs and a leaner headcount. The risk is that aggressive cost cuts could impair content quality, a critical driver for both linear and digital viewership.
Competitive Landscape: Tata Play, Disney+ Hotstar, and the Streaming Arms Race
Peers such as Tata Play (formerly Tata Sky) and Disney+ Hotstar have been aggressively expanding their subscription bundles, often subsidizing pricing through deep pockets. Yet, Zee’s advantage lies in its extensive library of regional language content and its integrated broadcast‑to‑digital pipeline. While Disney+ leverages global franchises, Zee’s localized strategy resonates with tier‑2 and tier‑3 markets where regional language consumption is high.
Historically, companies that master regional segmentation—think Star India before its Disney acquisition—have been able to extract premium ad rates in local markets. Zee’s recent gain of 60bps in linear TV share underscores that its regional footprint is still expanding.
Historical Parallel: The 2015–2017 Turnaround Playbook
During 2015‑2017, Zee faced a similar ad‑revenue slump but pivoted by launching a premium OTT platform (Zee5) and renegotiating B2B carriage contracts. The stock rallied 45% over 18 months as the subscription business crossed the profitability threshold. The current environment mirrors that era, albeit with higher competition. The key differentiator now is the GST cut, which was not a factor then, potentially accelerating ad‑spend recovery.
Technical Metrics Worth Watching
- Forward P/E Ratio: ICICI’s 18× FY27 forward P/E suggests the market is pricing in modest growth; a breakout above this multiple would signal re‑rating.
- Subscriber ARPU (Average Revenue Per User): Trending upward indicates pricing power and content stickiness.
- TV Rating Points (TRP): The 60bps market‑share gain is a leading indicator of ad‑inventory quality.
Investor Playbook: Bull vs. Bear Cases
Bull Case: Faster‑than‑expected ad recovery driven by GST cuts and FMCG spend, combined with continued subscription margin expansion. This could push the forward P/E to 22×, lifting the target price to INR 150.
Bear Case: Prolonged ad weakness and cost‑optimization delays erode margins, causing the stock to remain stuck around current levels or dip below INR 80. A failure to sustain Zee5’s EBITDA positivity would also weigh heavily.
Bottom line: Zee Entertainment sits at a crossroads where a modest uptick in subscriptions has already shifted the earnings narrative. The next 12‑18 months will decide whether that shift translates into a full‑blown re‑rating or a temporary blip. Investors who keep an eye on ad‑spend policy changes, subscriber ARPU trends, and cost‑cut execution will be best positioned to capture upside.