News Corp. is expected to report quarterly results Monday, potentially adding to gloomy headlines about media companies. But media investors are finding plenty of ways to make money, as long as they're not married to print.
More than half of the 25 media companies in the broad Standard & Poor's 1500 index, most notably cable companies, such as Cable One (CABO), movie theater company Cinemark (CNK) and diversified media companies with strong TV presences like CBS (CBS) and Time Warner (TWX), either posted higher revenue and adjusted earnings during the third quarter or are expected to do so, according to a USA TODAY analysis of data from S&P Global Market Intelligence. An equal-weighted index of media stocks is down 1.7% this year, but much of that is due to massive declines by the worst performers. Shares of 11 of the 25 media companies are up this year.
Media companies with a substantial interest in print, like USA TODAY publisher Gannett (GCI), Time (TIME) and New York Times (NYT), suffered most at the hands of investors. Either revenue or adjusted earnings fell at each of these during the quarter and their stocks are down an average of 31% this year. The third quarter has highlighted how businesses with a substantial print component are slipping relative to other media players. Analysts expect News Corp, publisher of The Wall Street Journal, to break even for the quarter and revenue to fall nearly 3% to $1.96 billion.
"It’s become even more imperative for media investors to become highly selective in stock picking," says Tuna Amobi, analyst at research firm CFRA.
The third quarter has highlighted a shift that media investors are watching. "The transition of offline advertising dollars online has been going on for several years, with newspapers and magazines likely hurt the most, and TV advertising dollars have been fairly stable," says Kerry Rice, analyst at research firm Needham.
Cable company operators continue to be the media juggernauts, not only from the standpoint of earnings and revenue growth, but also stock price performance. While media stocks in the S&P 1500 are down an average of 1.7% this year, key cable operators are having a banner year. Shares of Cable ONEand Charter Communications (CHTR) are the top-performing media stocks this year by a mile, rising 31.3% and 23.5%, respectively. While AT&T (T)isn't considered a media company, its influence is a big one as it is bidding for Time Warner, which is up 34% this year.
Filmed and video entertainment companies, too, have largely been a bright spot for media investors at least. Thanks to solid advertising from the Super Bowl and political ads, CBS posted 19% higher adjusted quarterly profit this year while revenue grew more than 4%. Even facing difficult comparisons next year vs. 2016, CFRA's Amobi still sees Viacom's revenue gaining 0.9%. CBS shares are up 20% this year.
So far, the cable and filmed entertainment companies have avoided seeing their business siphoned off by tech companies that aren't technically media companies but are ones in the eyes of consumers. Shares of Facebook (FB), Google parent Alphabet (GOOGL) and even smaller digital players like Yelp (YELP) have benefited as more ad dollars that would have been spent in print are making their way online instead. The global advertising market grew $5 billion in the second quarter, with Facebook and Alphabet gobbling up that and more, says Colin Sebastian, analyst at research firm Robert W. Baird. Facebook and Alphabet, not to mention smaller digital players, are now rapidly taking advertising dollars and investors' attention. Shares of Facebook and Alphabet are up 16% and 1%, respectively, this year.
There are always company-specific issues at play. Walt Disney (DIS) shares are down 12% this year, for instance, as investors worry about the growth of the company's ESPN franchise. But investors seem to have their world view of change in place. "Our view is that the large online platform companies will continue to gain significant share, benefiting from a strong gravitational pull with consumers," Sebastian says. Investors seem to agree.