Media stocks finally caught a bid late last week coinciding with the final set of earnings reports from the group. Viacom, AMC Networks, and Disney each reported solid results and indicated current, positive trends remained largely intact. The Street remains very worried about the advertising outlook despite the positive tone of management comments. It seems as though analysts are more skeptical than investors at this point. That is probably because the stocks likely found a level at which the concerns were priced in from the perspective of portfolio managers. Equally encouraging for bulls is that the gains have held so far this week against some Europe related market selling pressure. It is still too soon to say the coast is clear. Only clarity on 2012 advertising and macroeconomics will do that.
Coming out of the quarter, I have greater respect for the concerns about the national TV ad market. I still think the ad market is going to hold at a solid growth rate for 2012 but there is no doubt that advertising has softened somewhat. Where I differ is that I think it is normal softening after the bounce off the cyclical low of 2009 has run its course. The 2011 Upfront marked the culmination of the normalization of the national TV ad market as prices fully caught up to trend. Today, trends are still positive but with upfront prices higher and the economic outlook still uncertain, scatter price premiums and volumes have eased. I see that as normal but others think it is the first sign of trouble.
Given my view, I am sticking with Northlake’s exposure to traditional ad supported media stocks. CBS and Discovery Communications (DISCK) appear to have the best near-term fundamentals so I am making no changes to current positions in these holdings. However, given some uncertainty about the outlook for advertising I have been looking for new ideas away from traditional media. The recent purchase of EMC Corporation (EMC) as outlined in the latest monthly email reflects this shift in focus.
Disclosure: VIA.B, AMCX, DISCK, and CBS are net long positions in the Entermedia Funds. The Entermedia Funds are long/short equity hedge funds focused on media, entertainment, communications, and related technologies. Steve is co-portfolio manager of Entermedia, owns a stake in Entermedia’s investment management company, and has personal monies invested in the Funds. EMC, CBS and DISCK are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.