Quarterly numbers are just part of the story this week as the big media companies start reporting financial results.
Yes, investors will want to know what's happening with high-speed Internet growth at
, which are slated to release September quarter results Wednesday morning. And they'll be tracking the performance of the cable networks, television and outdoor business at
, which is due to report Thursday morning.
But as media stocks attempt to snap out of a yearlong slumber -- Comcast and Viacom each have lost a quarter of their value in 2004, and Cox is flat only because it is being taken private -- investors will be equally focused on long-term questions.
How much stock, for example, will Viacom CEO Sumner Redstone buy back after the spinoff of the
subsidiary? How will any Comcast deal for
affect free cash flow? And how will the buyout of cable operator Cox affect the strategic landscape of the cable/satellite business?
On Monday, Comcast rose a nickel to $22.89, Cox rose a penny to $34.43 and Viacom dropped 3 cents to $34.36.
First, the numbers. For the third quarter ended Sept. 30, analysts surveyed by Thomson First Call are expecting Viacom to post earnings of 41 cents a share on revenue of $6.9 billion. Earnings before interest, taxes, depreciation and amortization are expected to be $1.66 billion.
At Comcast, the expectations are for 11 cents in EPS on revenue of $5.04 billion. EBITDA, also known as operating income before depreciation and amortization, will come in at $1.92 billion, according to the consensus.
Cox is expected to report EPS of 13 cents on revenue of $1.63 billion for the quarter. Analysts expect EBITDA to come in at $622 million. With parent Cox Enterprises expecting to complete its buyout by mid-December, and with several analysts suspending their coverage on Cox, the cable operator will be forgoing the usual quarterly conference call Wednesday morning, leaving it to investors to decipher its results on their own.
As for the bigger unanswered questions, many will have to remain unanswerable. At Comcast, investors want to know how much money the company will be spending, if any, on Adelphia. With the auction process likely months from completion, they're not going to find out.
Also at Comcast, the usual questions will arise regarding the possible long-term damage to Comcast's future from the rise of the satellite TV operators
. Analysts will be looking to see whether there is continued weakness in the basic business, for which Comcast this summer lowered growth forecasts. Wall Street is expecting Comcast to have exited the third quarter with the same number of basic video subscribers it started with. But observers also will be looking to see how expensive it will be for Comcast to shore up basic operations.
Not investing in the basic business "could exacerbate risks," writes UBS analyst Aryeh Bourkoff in a recent note. "Accordingly, we believe shares could remain range-bound near-term given the risks to growth vs. dampened investor sentiment should the company invest more aggressively to drive sub growth." Bourkoff has a neutral rating on Comcast and a $31 price target; his firm has done recent banking for Comcast.
Comcast will likely argue, as it has in the past, that the company will continue to distinguish itself with high-margin, high-quality advanced services -- broadband Internet this year, and probably telephony in the coming years. Again, it's too early to tell.
Romancing the Stone
At Viacom -- where, as at Comcast and most other media companies, investors have been laser-focused on the prospects of increased returns to shareholders via dividends and stock buybacks -- Redstone may indeed shed light on the size of what he has all but called the mother of all stock buybacks.
Analyst Laura Martin of Soleil/Media Metrics says the market is expecting $3 billion in stock buybacks, beyond the 28 million shares Viacom retired as part of the Blockbuster spinoff. But Martin says she expects the new buyback to be closer to $7 billion to $10 billion, which, at the low end of that range, translates into at least 207 million shares at current prices. A higher buyback "is
in the stock yet," says Martin. "We believe that Viacom will be willing to drive its share price up in order to repurchase shares near these levels."
Adds Martin, "At any level, Viacom buying its own shares creates a new floor for the share price," improving the risk/reward ratio for Viacom shareholders. Martin has a buy rating on Viacom and a $50 price target; her firm doesn't provide investment banking services.
Another unknown for Viacom is to what degree Howard Stern's planned 2006 departure for
Sirius Satellite Radio
will affect the company. Analysts including Martin have downplayed the financial impact of Stern's move, but the psychic impact on Infinity's business may be greater.