Another quarterly earnings season kicks into high gear this week with reports from eBay
(NASDAQ:GOOG), and Microsoft
(NASDAQ:MSFT). Next week things really pick up for media and communications investors when we hear from Yahoo
(NASDAQ:AAPL), and Comcast
The market enters this earnings season just a couple of percent off recently attained multi-year highs. Despite the steady rise in the market since early June there is a lot of worry and concern heading into this earnings season. In fact, current estimates for the S&P 500
(INDEXSP:.INX) call for the first quarter of negative year-over-year growth since 2009. Estimates have fallen sharply as the year has gone on, reflecting the slowdown in the economic recovery that seemed to accelerate in late spring and early summer.
More recent economic data has been better, however. 2012 may mark the third straight year that the economy had disappointing performance in the first half of the year and picked up in the second half of the year. This pickup could be important as it may lead to guidance commentary that is better than the reported earnings.
Wall Street looks forward, not backward, so guidance is always critical. In a quarter when reported numbers could be disappointing, any positive guidance could provide the relief that pushes the market back to and above recent highs.
The more recent, better data has been driven by segments of the economy tied into consumer discretionary spending. Housing seems to be in a durable recovery. Auto sales remained strong most of the year and picked up recently and might be accelerating. This week’s report on retail sales showed surprising strength, well above economist expectations. This might provide a nice backdrop for media investor and communications investors as advertising and consumer spending trends are closely related. Even communications benefits as households might add new smartphones and tablets and TVs and stick with current TV and broadband packages or at least stop cutting back to save money.
Let’s move beyond the market overview and take a look at some key factors that will drive the earnings reports and Wall Street’s reception of the numbers. Advertising:
TV ad trends look pretty solid since the end of the Summer Olympics. Reported numbers are going to show slower growth rates than the first half of the year but many management teams and observers have noted a nice pickup and firm scatter trends since early September. Local TV stations are starting to see the benefit of politics. Gannett’s earnings report, out already this week, revealed better than expected TV station ad growth with no letup in the fourth quarter. One issue emerging for TV is poor ratings to start the season for the big four broadcast networks. Actually, NBC
(NYSE:GE) is off to a good start but the declines at ABC
(NYSE:CBS), and Fox
(NASDAQ:NWSA) are high. This could impact guidance and certainly will be a primary issue on conference calls.
Internet advertising trends look good for search but mixed for display. This should play well for Google which over-indexes revenue to search and display market share. The display market took a little hit from the Olympics but the larger concern is the transition to mobile. Facebook
(NASDAQ:FB) is also getting more aggressive, trying to monetize its larger user base.
The third quarter is seasonally stronger for subscriber-based businesses. Trends in cable should show fewer losses for video subs but losses nonetheless. Cable is set for another quarter of domination in video subs. Domestic satellite TV subs will likely remain pressured. ARPU across TV and broadband looks stable with year to date trends.
In other trends, no negative surprises are in store as the market share is competitive but reasonable. In wireless, the focus will be on margins with the rollout of the
iPhone 5 and Samsung’s
(PINK:SSNLF) Galaxy S3. Wireless service providers instituted some effective changes to upgrade policies that helped margins in the second quarter. The new phone introductions are a good test for how much discipline the companies will sustain. Guidance on fourth quarter margins during the very seasonally strong quarter for smartphone sales will also be instructive.
Theatrical trends mean little to stock prices as investors understand the high volatility in results and do not generally pay for box office hits and misses. It is widely understood that third quarter box office trends were negative and disappointing. However, October is off to an excellent start and comparisons look easy relative to a disappointing holiday season a week ago.
On a related note, home video has taken a huge hit in recent years and now has a much smaller impact in terms of holding back results for studios. Trends in home video have been improving, however. Maybe it is just easy comparisons but digital sales could be helping. Regardless, a smaller negative is a positive on Wall Street where momentum matters.
This column was previously published by SNL Kagan on www.snl.com.
No positions in stocks mentioned.
Entermedia is a long/short equity hedge fund focused on media, communic=
ations, and related technologies. Steve Birenberg is co-portfolio manager o=
f Entermedia, owns a stake in the Funds' investment management compan=
y, and has personal monies invested in the Funds. CBS and Discovery Communi=
cations are widely held by Northlake Capital Management, LLC, including in =
Steve Birenberg's personal accounts. Steve is sole proprietor of Nort=
hlake, a long only registered investment advisor.
The information on this website solely reflects the analysis of or opin=
ion about the performance of securities and financial markets by the writer=
s whose articles appear on the site. The views expressed by the writers are=
not necessarily the views of Minyanville Media, Inc. or members of its man=
agement. Nothing contained on the website is intended to constitute a recom=
mendation or advice addressed to an individual investor or category of inve=
stors to purchase, sell or hold any security, or to take any action with re=
spect to the prospective movement of the securities markets or to solicit t=
he purchase or sale of any security. Any investment decisions must be made =
by the reader either individually or in consultation with his or her invest=
ment professional. Minyanville writers and staff may trade or hold position=
s in securities that are discussed in articles appearing on the website. Wr=
iters of articles are required to disclose whether they have a position in =
any stock or fund discussed in an article, but are not permitted to disclos=
e the size or direction of the position. Nothing on this website is intende=
d to solicit business of any kind for a writer's business or fund. Miny=
anville management and staff as well as contributing writers will not respo=
nd to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.