Hollywood's Wild Stock Ride
The market turmoil has ad-dependent studio conglomerates on edge as they face a cloudy future.
Wall Street might be bleeding, but the recent stock market selling spree is causing even more pain in Hollywood. As of the closing bell Aug. 9, the seven studio conglomerates, especially those most dependent on advertising revenue, have slid an average of 10.6 percent in August, down even more than the broad-based S&P 500 stock index. Entertainment giants, whose financials are generally driven by the performance of their cable networks, had outperformed the market during the first half of the year amid a red-hot TV advertising market. But now, as investors fear a double-dip recession, the ad market could turn anywhere from lukewarm to ice cold -- or at least that's what analysts believe.
Former industry analyst Hal Vogel expects entertainment companies to continue to underperform in the current environment "because the drop in ad revenue comes directly out of the profits without any cushion."
The stocks of all Hollywood congloms, except Sumner Redstone-controlled CBS and Viacom, have fallen below their 2010 closing prices. CBS remained 28.5 percent ahead as of Aug. 9, and Viacom was up 11.1 percent. Among showbiz stocks, Comcast and Time Warner have declined the most since Aug. 1. TW's shares hit a 52-week low Aug. 9, and Sony sunk to the same milestone the day before.
"Those with relatively more ad exposure like CBS [which gets more than 60 percent of revenue from advertising] and News Corp. got hit more," says Miller Tabak analyst David Joyce. But those stocks also bounced back more sharply amid a market rebound Aug. 9.
On the other hand, "Disney [19 percent], Time Warner [21 percent] and Viacom [35 percent] have less advertising exposure, primarily due to other non-advertising business units such as parks and film," notes UBS analyst John Janedis.
But while some observers fear a replay of the recent recession, Wunderlich Securities analyst Matthew Harrigan says that "even with a recession, I expect ad spending to hold up better than three years ago -- it is too important to companies."
Evercore analyst Alan Gould says even News Corp., reeling from the hacking scandal, might be a good buy. "Except for the highly unlikely loss of the U.S. TV properties, the aftermath should be a positive for the stock," he says.