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Early Earnings OK on Paper, but the Street Is Responding Negatively

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A few media and communications have reported decent earnings, but Wall Street is in a bearish mood.

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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 (NASDAQ:MSFT).

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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