Media and communications companies report mostly towards the end of each quarter’s earnings season. As a result, I look for clues in the early reports. So far, we have heard from Omnicom
(NYSE:GCI), Media General
(NASDAQ:YHOO), Virgin Media
(NASDAQ:VMED), and Verizon Communications
I would classify the results and guidance commentary as decent. However, Wall Street has reacted negatively, but that is mostly due to poor results from companies outside of media and communications. I would also caution that the recent earnings related sell-off in the market reflects the economy in the spring and summer when macro data clearly showed a slowdown in growth.
More recent data has been firmer led by housing and autos. Housing and autos feed consumer discretionary expenditures, which is the driver of business fundamentals and ultimately stock prices for media and communications companies.
The bottom line is that is too early to call the quarter (especially since we have yet to hear from US entertainment conglomerates or cable companies) -- but for media and communications, things appear to be going better than for the many other economic sectors.
Omnicom is the only company to give a broad view on national advertising. Growth for domestic advertising came in a little light at 3.1% and management noted concern for the macroeconomic outlook. Guidance indicates no further deceleration in domestic growth, but I think Omnicom’s results and commentary suggests risk is to the downside.
Better news came from Gannett and Media General, which saw very robust growth in local TV station advertising revenues. Olympics and political spending appeared very strong with the long-awaited pickup in advertising extending into October. Both companies indicated fourth-quarter ad growth would remain elevated. Local TV stations are also enjoying strong growth from the auto industry, another positive that is expected to continue. The read through of local TV growth is muted for the big entertainment conglomerates, but strength surrounding sports and autos is a good sign. Google and Yahoo provide a look at national advertising, but only in the online space. Google’s earnings disappointed with a small shortfall on the top line from Google.com. Interestingly, partner sites were a bit stronger. Partner sites are more domestic focused and Google called out forex as part of the problem for Google.com. Yahoo continues to struggle, especially in display where the company saw no growth. Search spending did pick up for Yahoo, driven by better pricing in its search partnership with Microsoft
Read through from the Internet giants to the rest of media is limited, but Internet advertising is still gaining share with display and search growing at least mid-teens overall against low to mid-single digit growth for advertising as a whole. This is a long-term concern for traditional media, but nothing new as far as this quarter goes.
In communications, the highlight at Verizon was good wireless margins indicating that despite recent high profile phone introductions, new policies on upgrades may be holding firm. iPhone
(NASDAQ:APPL) activations at Verizon were a little better than expected, but until we hear from AT&T
(NYSE:T) tomorrow, it is hard to judge if this is a market share gain for Verizon or an indication that fears of iPhone demand stalling ahead of iPhone 5 may have been overdone. Verizon’s broadband and TV subscriber additions both came in below recent management guidance. Again, it is hard to judge in isolation, but it is probably a good bet that cable had another quarter of domination on the broadband front.
Speaking of cable, Virgin Media had an excellent quarter at the subscriber level. It may not be fair to compare a UK-only cable company to the domestic cable giants, but Virgin Media’s results reinforce the concept that the cable industry is shifting to the broadband industry and the halo of having the best wire to the home is a real positive for investors.
Apple, Google, and Virgin Media are net long positions in the Entermedia Funds. Entermedia is a long/short equity hedge fund focused on media, entertainment, leisure, communications and related technologies. Steve Birenberg is co-portfolio manager of Entermedia, owns a stake in the funds' investment management company and has personal monies invested in the funds. Apple and Google are widely held by Northlake Capital Management LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, a long only registered investment adviser.
This column was previously published by SNL Kagan on www.snl.com.
Author and/or his company hold positions in several 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.
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