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More Media Stocks: Viacom, News Corp

Posted on Wednesday, Aug 13th 2008

I continue my analysis of media stocks’ quarterly results with a discussion of Viacom and News Corp, both of which recently announced their June quarter results.

We did a deep dive on Viacom (VIA) last Fall. hThe company as been doing well the last few quarters. It ended Q4 last year with a few smart moves and continued to perform in Q1 of the current year. The current quarter followed the same path.

Q2 revenues grew 21% to $3.86 billion. Media networks revenues were up 11% for the quarter, and the filmed entertainment segment delivered 35% revenue growth to $1.8 billion. Adjusted diluted EPS for the quarter was $0.64, a 19% increase over the previous year.

During the quarter Viacom repurchased 12 million shares for $446 million.

They gave guidance for the three-year period from 2008-2010 of low double-digit annual growth for revenues and diluted net EPS.

Like all the other media majors, Viacom has not been spared by the recession. Advertising revenues had a substantial impact: worldwide advertising revenues grew only 2% over the year and domestic advertising only 1%.

Meanwhile, Viacom continues to expand their digital strategy. They expect the increasing competition between cable carriers, satellite and telecom companies to result in programming and service differentiation. “Simply having technology will not be enough”, they have said. Their strength in monetizing content on new and emerging platforms will help them lead the competition.

Viacom is the largest provider of video content on mobile phones. In addition, they are building on their leadership position in online casual gaming in the US by moving into mobile games through new mini games and games which will be based on hit Paramount movies such as Saturday Night Fever and Top Gun.

They are expanding their global footprint and recently launched Nick Arabia, Nick Poland and Nick Africa. They are also improving and expanding their content and have created strong demographic brands like the male-oriented Spike. Earlier, they acquired Working Harmonics, which helped them develop their Rock Band franchise.

They are strengthening their presence in the tween and kids spaces through new programming content. Nick grew its tween delivery by 5%, increasing its lead over the second-place network to 16%.

Despite all of these positive developments, the stock fell $1.16 to end at $28.67. Like other media stocks, it hit a new 52-week low in mid July, to reach $27.55. It is currently trading at $29.22

1yr VIA

Rupert Murdoch’s News Corporation (NWS), which we also did a deep dive on last Fall, announced impressive Q4 results last week. Despite growing economic challenges, the company reported revenue of $8.59 billion, a 17% increase over the year. EPS grew by 13% to $0.35 in the quarter compared with analysts’ expectations of $0.34.

Most of the quarter’s growth was driven by the performance of Sky Italia, which added 55,000 net subscribers in the quarter and 366,000 net new subscribers for the year to end the year with a subscriber base of just over 4.6 million. Sky Italia also recorded 37% margin growth over the year.

The newspaper and information segment reported a 29% increase in income over the year, which was primarily driven by advertising and circulation revenue increases at their Australian papers and reduced costs from their UK print projects and the inclusion of Dow Jones.

Earnings from the television segment, however, dropped 28% over the year primarily due to a reduction in advertising revenues. Ad sales were down by 10% in the markets, led by cuts in the automotive, telecommunications, and movie sectors.

Fox News Channel earnings grew 10% over the year, and Fox Broadcasting was ranked as the leader in key media metrics. Fox has been expanding into markets and is looking at investments up to $60 million in India alone through the launch of additional local channels.

However, the company’s Fox Interactive Media unit, which includes social networking site MySpace.com, had lower operating income. Murdoch has not been able to improve the performance of MySpace.com for some time now. News Corp is now planning to launch the MySpace music joint venture, offering users the ability to listen to free streaming music and purchase song downloads, ringtones, and concert tickets. They are looking at selling the feature to the existing 65% of their user base who already embed music in their profiles.

FIM’s revenue rose 23%, with search revenue contributing half of the gain. The company said costs will rise again in fiscal year 2009, but at a pace slower than it expects revenue will increase.

During the quarter News Corp sold off eight of their smaller TV stations for $1.1 billion. They continues to offer quality content, but they need to add to their verticals. I had talked earlier about the need for them to enter the travel, healthcare, or career portals. In career, they have an investment in SimplyHired, and in travel, they could pick from a long list of startups.

The market did not react well to the results announcement, and the stock reached a new 52-week low of $13.83 late last week. It is currently trading at $13.99 levels.

1yr NWS

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