"We see the group's domestic networks as most vulnerable to the challenges to traditional video bundles from new OTT services, and see limited scope for international networks to compensate in the near term," analysts said.
The fact that the core U.S. domestic networks have limited "must have" content will put pressure on Discovery's affiliate revenue growth, they added.
Other catalysts include ad hoc updates on advertising trends from media buyers, competitors and advertisers, and the company's affiliate agreement with Comcast (CMCSA), which is due for renewal in mid-2015.
The stock closed up 0.06% to $33.95 yesterday.
Separately, TheStreet Ratings team rates DISCOVERY COMMUNICATIONS INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate DISCOVERY COMMUNICATIONS INC (DISCA) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, notable return on equity, attractive valuation levels and expanding profit margins. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DISCA's revenue growth has slightly outpaced the industry average of 3.8%. Since the same quarter one year prior, revenues slightly increased by 8.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Media industry and the overall market, DISCOVERY COMMUNICATIONS INC's return on equity exceeds that of both the industry average and the S&P 500.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Media industry average. The net income increased by 8.7% when compared to the same quarter one year prior, going from $230.00 million to $250.00 million.
- The gross profit margin for DISCOVERY COMMUNICATIONS INC is currently very high, coming in at 89.46%. Regardless of DISCA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DISCA's net profit margin of 16.26% compares favorably to the industry average.
- You can view the full analysis from the report here: DISCA Ratings Report