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April 28, 2008

Scripps Gets Media Earnings Off On The Right Foot

Earnings season for media companies began in earnest last week and really picks up this week. Among major companies, CBS, Time Warner, Viacom, and Comcast report this week. Smaller companies reporting include Northlake long positions Rogers Communications and Central European Media Enterprises, as well as Dreamworks Animation.

There were a couple of noteworthy reports last week that led to significant stock price reactions. On the plus side, E.W. Scripps (SSP) reported better than expected results and saw its shares rise over 2%. On the negative side, Regal Entertainment (RGC) reported in line results but caught a downgrade that led the shares to drop almost 4% on Friday. I'll provide more comments on RGC tomorrow.

Results from SSP were favorable at the company's growth business including cable networks and online. HGTV and Food Network rode strong ratings to better than expected advertising gains. Especially encouraging was a growing contribution from newer networks like DIY and Fine Living....

....Also notable was a big upside surprise in the Interactive division. Shopping comparison site Shopzilla saw a return to significant profitability as traffic picked up and traffic acquisition costs moderated. Last year Shopzilla suffered from expensive keyword pricing which management chose to counter by securing more direct traffic. The strategy appears to be working. SSP also got a boost from much lower losses at uSwitch, a UK based site that helps households compare utility and telecom bills. This business has been a bad acquisition from day one but management finally seems to have their arms around it. Both the cable nets and online businesses are being spun out together this summer while the newspaper and TV station segments will become a separate company. Those traditional media businesses are suffering greatly at the moment which limited the upside in the stock off the good quarter. I'd be a buyer of SSP if it approached the low $40s all else equal.

Posted by Steve Birenberg at April 28, 2008 02:51 PM in SSP