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February 25, 2009
Discovery Communicaitons Provides Some Good News
I finally got something right. Discovery Communications (DISCA) reported another positive surprise (EBITDA +23%, margins +700 basis points) and provided upbeat 2009 guidance. The stock responded by jumping 15%, leaving it within 10% of its mid-September, pre-crash level.
4Q08 benefited from continued strength in domestic and international advertising, ongoing growth in domestic and international distribution fees, and great cost control. Guidance for 2009 suggests these trends will continue with the macroeconomic headwinds taking growth rates to flat to up low single digits excluding investment in the start-up Oprah Winfrey Network. In this environment, especially for media stocks, the guidance is stellar.
DISCA management is doing a great job of managing the business and managing street expectations. If the company can hold on through the downturn it is poised to come out the other side in really good shape. A nice aspect to the DISCA story is that right now results are being driven on a global basis by the well established networks (Discovery, TLC, and Animal Planet) but the potential for phase 2 and phase 3 exists as new sets of networks are rebranded and monetized. DISCA is already having success with Science Channel and Investigation Discovery. Down the road similar value could be created from the Oprah Winfrey Network or currently morose nets like FitTV, Discovery Kids, and Military Channel.
DISCA's results also bode well for other cable network heavy stocks including Time Warner (TWX), Viacom (VIA), and Scripps Interactive (SNI). DISCA is the best story but the cushion of distribution fee growth and relatively strong advertising spending makes cable networks one of the only investable themes in media.
Posted by Steve Birenberg at February 25, 2009 03:41 PM in DISCA
THE OVERALL MARKET AND THE EEM ARE BOTH UP. CETV AND MICC ARE DOWN.CETV NEEDS TO DO SOMETHING TO CHANGE SENTIMENT-? SELL UKRAINE.SOME ANALYSTS HAVE DOWNGRADED CETV.
Posted by: MP at February 26, 2009 10:00 AMCETV is a broken stock. Other than taking a macor view that the delcine in Eastern European sentiment has peaked there is little reason for big players to step in and buy. Just today, we have to read about whether Russia is gong to be downgraded to junk, for example.
There is plenty of value here but to realize it requires a cessation of the macro pressures. That will happen eventually but it is equally likely, maybe more likely, that the macro pressures get even worse.
I am glad that analysts have downgraded. Big deal, they could have done it months or weeks ago. As this point CETV shares are best off if everyone hates them.
I do not think CETV is anwhere close to throwing inthe towel on Ukraine. That said, long before they would issue new equity they woudl sell or close down Ukraine and Bulgaria.
If they did sell Ukraine for a few hundred million today I think the stock would double ASAP but CETV's management and Board has a longer time horizon than stock traders so they would only exit Ukraine if survival of the company were at stake. That is not the case. There is no liquidity or bankruptcy risk for the next couple of years.
Posted by: Steve at February 26, 2009 10:29 AM