Steve Birenberg
Major media stocks continue to struggle. With the exception of Disney (DIS Quote - Cramer on DIS - Stock Picks), the big entertainment companies are all trading at 52-week lows. P/E multiples are near historical lows in absolute sense and relative to the market.
The reason for the poor performance is obvious. Investors believe that fundamental operating trends are deteriorating at an accelerating pace with no signs of a bottom. The primary culprit is advertising, where the cyclical downturn is coming on top of market-share loss to the Internet and a fragmenting of consumer attention spans. Merrill Lynch and Goldman Sachs held media conferences a few weeks ago. Presentations reinforced the very weak advertising trends in magazines, newspapers and radio. I believe that comments indicating that TV trends were succumbing have further soured sentiment toward media stocks. Local TV was supposed to be bailed out by political spending, but so far, that does not appear to be happening. I suspect that the campaigns are diversifying their TV ad buys, with more going to national networks and local cable TV. National TV has held up quite well even at the broadcast networks, where ratings were under severe pressure over the past year. During this time, the scatter market -- where ads are purchased for immediate airing -- was quite strong, with buyers paying substantial premiums to prices contracted at the upfront market. Cable networks have also been able to sustain ad growth in the upper single digits. In the last two weeks, however, it became apparent that the scatter market has finally weakened. Pricing has not collapsed and still is positive, but the trend has reversed. So the fundamental landscape for media companies' most important driver is deteriorating, maybe at an accelerating rate. This is obviously not good, and the recent action in the stocks reflects the pressure. The question is, do they reflect enough downside? Let's look at some data: |
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