Media companies continue to find themselves under pressure. No longer is their biggest headache competition from other companies. Now they must increase their investments in technology to keep up with digital and online media outlets. Media giants whose core business models were built on publishing are switching gears to keep up with customer demands for the latest technology. Also, the increase in companies offering streaming video services also presents challenges to the traditional media companies. I will review five of these companies that I believe provide a good starting point for analysis of the media industry.
Comcast Corporation (CMCSA): Shares are trading around $28 at the time of writing, which topped the company's 52-week trading high of $27.18. The 52-week low was $19.19. As a leading media, entertainment and communications company, Comcast has a market capitalization of roughly $74 billion. Its earnings per share were $1.39. The company paid a dividend of $.45, yielding about 1.7%. Its price to earnings ratio was 19.50. Revenues last year were about $50 billion and the company's net income was $3.9 billion.
In January, Comcast announced that it would enter into a long-term, distribution agreement with The Walt Disney Company (DIS) to deliver Disney's entertainment, news and sports content to Comcast's Xfinity TV customers. The goal is to allow both companies to deliver video content to customers across multiple platforms, including TV, tablets and handheld devices.The collaboration is important because of the increased competition that both media giants are receiving from other companies, especially those, like Netflix, that offer streaming services. Comcast's gross margin was 52.92% and its operating margin was 19.85%. The high gross margin indicates that Comcast has the cash flow to continue to invest in the technology it needs to remain competitive. Comcast is a buy.
News Corporation (NWS): Shares are trading around $20, at the time of writing, which is approaching its 52-week high of $20.31. Its 52-week trading low was $13.83. News Corp.'s market capitalization is $50.9 billion. Its earnings per share were $1.02. It paid a dividend of just $.19, yielding just .9%. The company reported that its revenues in the second quarter of fiscal 2012 increased 2% to roughly $9 billion. The growth stemmed largely from News Corp.'s cable network programming, television and filmed entertainment segments. Operating income for all of the segments grew 16% to $1.5 billion.
While the cable, television and film entertainment segments had gains, News Corp.'s publishing segments had losses. In fact, second quarter segment operating income was $218 million, which was a 43% decrease compared to the $380 million reported a year before. Lower advertising revenues at the company's Australian newspapers and the absence of contributions from the closure of The News of the World in the U.K. were to blame, according to the company. The infamous hacking scandal at the newspaper cost the company about $87 million during the last quarter.
The media company's publishing segment will likely continue to see losses as print media loses its core audience to online media. At 15.36% and 37.33%, News Corp.'s operating and gross margins are low compared to the industry. The company will have to continue to shift its investments from the low performing publishing segment to its other segments to remain competitive. News Corp. is a buy.
Time Warner Inc. (TWX): Shares are trading at $39 at the time of writing, which was above the company's 52-week high of $38.62. During the week of Feb. 6, Time Warner's share price hit a 52-week high of $39.10. Its 52-week low was $27.62. Time Warner's stock was buoyed by its recent 2011 fourth quarter results.
The media and entertainment giant saw its revenues increase 8% to $29 billion last year. The company reported that the increase represented its highest growth rate since 2003. Operating income also set a record, increasing 9% to almost $6 billion.
Earnings per share grew 20% to $2.89. That amounts to a doubling of the adjusted EPS over the past three years. The company paid a dividend of $.94, yielding 2.5%. In reporting its 2011 fourth quarter results, Time Warner's board of directors announced that it had also authorized an 11% increase in the quarterly dividend. Time Warner has an operating margin of 20.2% and a gross margin of 43.4%. Those margins are higher than some of its competitors. For example, Disney (DIS) has an operating and gross margin of 19.14%. A large part of the company's increase in revenue stemmed from its Warner Brothers movie studio. In 2011, Warner Brothers grossed $4.7 billion at the worldwide box office.
The company plans to continue investing in programming, production and marketing. It also plans to further expand its international presence. Time Warner's continued ability to offer blockbuster movies and attractive cable television networks will further its revenue increases, making it a buy.
Viacom Inc. (VIA): With shares trading at around $55, Viacom's shares were within its 52-week range of $44.10 and $60.90. Earnings per share were $2.99. It has a market capitalization of about $30 billion. When the company released its first quarter revenue report for fiscal 2012, it reported that revenues increased 3% to $3.95 billion. That growth was driven by its media and filmed entertainment segments. Still, gains in those segments did not prevent the company's operating income from declining 2% to $1.02 billion.
Viacom pays a dividend of $1, which yields around 1.8%. Price to earnings ratio for Viacom are 18.6. Last year, Viacom had roughly $15 billion of revenues and a net income of $2 billion. Viacom credits the increase in revenues to its Paramount Pictures movie studio, which had strong box-office results. The company's operating margin is at 25.47% and its gross margin is at 46.56%.Viacom is making the concerted effort needed to improve its media and film entertainment segments, which is reflected by its strong operating and gross margins. It is a buy.
The Walt Disney Company : At the time of writing, shares are trading around $42, against their 52-week trading range of $28.19 to $44.34. Earnings per share for last year were $2.52, and it paid a dividend of $.60, yielding 1.5%. Disney's brands include Disney, Pixar, Marvel, ESPN and ABC. The company reports that those brands, especially ESPN, contributed to its strong earnings last year. Its net income was $4.8 billion and its revenues were $41 billion.
The company reports that for its first fiscal quarter that ended Dec.31, 2011, diluted earnings per share increased 18% to $0.80 from $0.68 in the prior-year quarter. Furthermore, the company has demonstrated its commitment to enhancing family entertainment on multiple platforms, which should help it reach its goals of providing long-term shareholder value. Disney's operating margin is 19.14% and so is its gross margin. These margins are among the weakest in the industry. If Disney is unable to invest sufficiently in technology to remain competitive, its stock may suffer. Disney is a hold.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
