Coming off of another quarterly earnings season, media stocks seem to be back to where things were earlier this year with investor sentiment toward macro issues driving performance. I still see more differentiation among media stocks based on individual company fundamentals. However, I see the winners and probable leaders of any rally being heavily influenced by the overall market trends. Lately, of course, that is down. Before focusing on which stocks to own or sell, let’s recap the big picture one final time.
National TV advertising was OK in the third quarter given the competition from the Olympics and the election season. CBS
(NYSE:CBS) actually called out the political conventions as a drag. Cable network advertising looks like it was up mid-single-digits. Broadcast was softer but the third quarter is seasonally weak before the new season begins with higher upfront pricing. Local TV did well, boosted by political and continued strength from the rebounding auto industry. Radio lost share. Internet continued its double-digit growth trend and market share gains. Several sell side analysts have noted one area of concern – advertising agencies are seeing a persistent slowing in domestic growth.
Investors were more focused on guidance and the advertising agency comments feed into concerns. Most TV networks are calling for a stronger fourth quarter driven by higher pricing in the new TV season and favorable scatter. My sense, however, is that analysts were expecting a little more out of ad growth guidance. Furthermore, management comments about “strong” scatter markets seem at odds with what advertisers and agencies are saying. Add in escalating worries about the fiscal cliff and Europe and the ascension of macro as a driver for the stocks makes sense.
In cable and satellite, it was a mixed quarter as well. Subscriber metrics were a little light and again raised concerns about cord cutting. Strength in broadband for cable remains. Diverging strategic direction and competitive impact is also creating winners and losers in multi-channel TV distributors. Capital spending and free cash flow is particularly important for these stocks and a few companies are on a different cycle facing pressures. Macro is less of an issue for cable and satellite as housing appears to be rebounding giving a little boost – or removing a negative – from the group. An interesting thing to watch is whether a continued housing recovery begins to firm up video subscriber growth. If it does not, the cord cutting debate will get very loud again. Despite the macro worries, I still see more opportunity in stock picking. Winners and losers are being more clearly defined in stock price action.
Among winners exiting this earnings season are CBS, Comcast
(NASDAQ:CMCSA), News Corporation
(NASDAQ:NWSA), AMC Networks
(NYSE:AOL), E.W. Scripps
(NYSE:SSP), and local TV stations, Scripps Interactive
(NYSE:SNI), Time Warner
(NYSE:TWX), and Lamar Advertising
(NASDAQ:LAMR). Each of these companies either reported good results, provided optimistic guidance, or eased concerns that previously existed.
Losers include Charter Communications
(NASDAQ:DTV), Dish Network
(NASDAQ:DISH), Central European Media Enterprises
(NASDAQ:GOOG), radio companies, and Disney
(NYSE:DIS). Each of these companies either missed earnings estimates, issued disappointing guidance, or raised concerns about future growth or financial performance.
The market is at a tricky juncture with the fiscal cliff looming. Sticking with winners and keeping losers on a short leash is always a good strategy – even more so when uncertainty is high.
Comcast, Charter Communications, Cablevision, Discovery Communications, DirecTV, News Corporation, Yahoo, Central European Media Enterprises, Google, E.W. Scripps and CBS 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. Charter Communications, Discovery Communications, Google, and CBS 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.
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.
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