With the rapidly changing business outlook due to Covid-19, several local and national ad categories are cancelling or reducing ad budgets – pulling back much more than in the financial crisis. As a result, we expect consensus estimates to move significantly lower, likely in a series of downward revisions in the coming months. We believe it’s too soon to get constructive on the media sector and we are downgrading ETM and IHRT to PP from OP, and prefer OP rated NXST for investors looking for exposure to the sector.
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The hottest names this week were WWE (1,474 bps better than the S&P), NFLX (1,373 bps), AMCX (774 bps), CABO (771 bps), and DISH (388 bps).
The hottest names this week were AMCX (1,278 bps better than the S&P), TGNA (1,030 bps), MDP (706 bps), FOXA (348 bps) and CMCSA (174 bps).
Similar to last week, there wasn't anything particularly hot about the market this week - but, we remind you that our What's Hot What's Not is all relative. On the bright side, at least this see-saw week has come to an end, TGIF.
While there wasn't anything particularly hot about the market this week, we remind you that our What's Hot What's Not is all relative. On a positive note, we finally made it to the end of this rough rough week, TGIF.
This really shouldn’t come as a surprise as virtually every name in the media space has a similar strategy to offset headwinds in the traditional pay-TV ecosystem. That said, the expected ramp in 2020 spend clearly weighed on DISCA today (-6.8% vs. S&P -4.4%), as well as the softer underlying trends for U.S. adv., higher linear sub losses, and the expected NT hit in int’l affiliate growth (more on this below). On a positive note, there does seem to be nice topline momentum for existing DTC products, FCF is substantial ($3.1B in ’19), a new buyback was announced ($2B), and net leverage is at the low end of its target (3x). But at the end of the day, the higher spend and softer trends caused us to reduce our ests. (see p. 3-4), as well as our PT to $31 from $34.
Total revenue was slightly ahead at $2. 874B (+2%) vs. our $2.872B (+2%). and Consensus’ $2.870B (+2%). International beat by roughly 100bps, while U.S. Networks missed by 75bps.
Following yesterday’s (02/25/20) DISH renewal, we figured AMCX had a good setup into today’s print. However, the quality of AMCX’s Q4 results combined with a softer than expected 2020 guide took the wind out of its sails (-7.9% today vs. S&P -0.4%). First on Q4, rev. beat us by 180bps, but it was driven by higher content licensing rather than affiliate fees – and adj. OI came in lower (by 115bps) while EPS missed ($1.69 vs. our $1.84). Looking ahead, Q1 trends sound similar to slightly worse – but the bigger surprise today was the softer 2020 guide. Revenue was guided down modestly (vs. our flat), and adjusted OI was guided down MSD-HSD (vs. our -5%) on higher investment spend for its new SVOD services. So despite the removal of overhangs with certain distributors (see below), it sounds like 2020 will end up a transition year to kickstart AMCX’s SVOD ambitions. Overall, we reduced our estimates (see p. 3-5) and Price Target to $40 from $46.
Total revenue was $785MM (+1.5%) vs. our $772MM (flattish) & the Street’s $774MM (flattish). The beat was across the board, but primarily in National – while International and Intersegment was only slightly ahead.
When DIS announced the FOXA deal back in December 2017, Bob Iger also renewed his contract to remain with DIS thru 12/31/21. Although he signaled he was ready to move on prior to the FOXA deal, he stayed on to ensure stability and see that the new DTC strategy (behind Disney+, ESPN+, & Hulu) was a success. While it feels like DIS is on the right path on both accounts, the timing of today’s announced transition still comes as a surprise with 2 years left on Iger’s contract. Further, there was a strong belief among investors that Kevin Mayer (Chairman of the new DTCI segment) was being groomed as Iger’s successor, since DTCI is viewed as vital to DIS’s future success both inside and outside of the company.
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