The final batch of earnings this quarter for Northlake holdings comes
from the media stocks. Much like with the earlier reports from the
technology stocks, the results and guidance were good but the stocks
went lower. The stock reactions are mostly a function of the market
correction underway so far in May, a decline of 3-4% on top of a loss of
1-2% in April. In the short-term, market trend is a controlling
factor. In the long run, the good results and positive outlooks will
win out.
Let's take a quick look at the recent reports:
CBS continued its string of great earnings. Results exceeded
expectations with operating margins expanding to all-time records yet
again. Top line growth reflects a rebound in advertising growth at the
CBS Network, slow and steady recovery in the local TV, radio, and
outdoor segments. Cost controls have been excellent and programming
expenses are under control thanks to many years of steady ratings at the
CBS Network. Margins are also benefiting from sales of content to
digital distributors like Netflix and Amazon. Retransmission fees paid
by cable and satellite companies for the rights to carry the TV network
are also growing quickly and highly profitable. Key for CBS shares is
that the new, high margin revenue streams are very stable and
predictable. This should allow the multiple investors pay for CBS
shares to continue to rise. It remains below other entertainment
stocks.
Discovery Communications reported better than expected results and
increased guidance. The stock fell 6%. DISCK shares have been among
the best performers in media as everyone has seen the great ratings for
the US networks (Discovery, TLC, Animal Planet, ID) and continued
expansion of the international reach with 20% advertising gains. The
company forecast moderating advertising growth in the current quarter
but still at industry leading levels. Management also reminded
investors that timing of expenses meant that the next two quarters would
see slower profit growth followed by a big spurt at year end. The only
problem with DISCK is that expectations were so high. If ratings and
ad growth hold, a period of pause should give way to continued gains in
the stock to the upper $50s.
Charter Communications reported a surprising increase in cable TV
subscribers. Since AT&T and Verizon launched TV and housing went
into a severe recession, cable TV companies have been slowly losing
customers. Investors worry that the losses are cord cutting as viewers
give up cable to watch TV via Netflix or on the web. The trend across
the industry over the past year has been for fewer lost subs. Charter
turned the corner this quarter. This is not a big deal as Charter and
other cable companies are driven now by high speed data and small and
mid-size business accounts but it does relieve big picture worries which
is good for the stocks.