Why iHeartMedia Stock Is Soaring Today

Shares of iHeartMedia (NASDAQ: IHRT) surged as much as 63.2% higher on Thursday morning, powered by a reasonable earnings report paired with a helpful debt restructuring. The broadcast radio and audio-streaming company's stock cooled down later in the day, but the single-day gain was a robust 24.1% just before 2 p.m. ET.

The heart of iHeartMedia's Q3 report was neither earnings nor revenues

iHeartMedia's third-quarter sales rose 5.8% year over year to $1.01 billion. Political advertising played a large part in the gains. The company reported a net loss of $41.3 million, significantly worse than the year-ago period's $9 million loss.

On the other hand, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) held steady at $204.6 million. Digital audio services saw strong revenue gains, while other operations posted relatively flat results.

If that doesn't sound like a market-moving success story, I'd agree. But there's more to the iHeartMedia story.

Management renegotiated 80% of the company's debt during the third quarter. The maturity dates on $4.1 billion of debt were extended by three years without raising their interest rates. Guidance suggested $200 million of positive free cash flows in 2025, and some of that cash will be used to pay down debt balances.

On the earnings call, CFO Rich Bressler noted that the debt-to-EBITDA leverage ratio should drop from 7.2x today to approximately 3.2 at the end of 2028. That effort should lower the stifling interest payments ($95.7 million in this quarter) and help management set up new financing under more favorable terms.

Balancing digital growth with legacy operations

I expected to talk about iHeartMedia's media strategy, but ended up focusing on the company's debt structure instead. That's not a good sign.

On the upside, iHeartMedia's digital revenues rose 13% year over year, indicating a strong online strategy. It's never easy to refocus on a new strategy when more than half of your sales are bound to legacy services, but this company should consider a sharp turn into cyberspace at this point.

Unfortunately, iHeartMedia's management seems to disagree. CEO Bob Pittman spent significant time on the earnings call to highlight how the online success relies on iHeartMedia's traditional radio presence. This looks like a dead-end strategy to me, but maybe I'm wrong -- only time will tell how it works out.

All this means I'll gladly stay on the sidelines while iHeartMedia works out its long-term business plan.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.