Analyst rebuts the broadcast naysayers


There have been a slew of investor conferences lately involving media companies, so analysts like Marci Ryvicker at Wells Fargo Securities have been hearing what actual money managers think about broadcasting stocks. She’s sent clients some comments addressing skepticism about the auto advertising recovery.

“Several investors seem concerned that the pace of auto advertising is unsustainable, suggesting we will see a significant pullback in the second half of 2011,” Ryvicker noted. “It is our understanding from our conversations and proprietary research that a) auto ad spend is highly correlated with SAAR [seasonally adjusted annual rate of auto sales], b) dollars spent per car on advertising have been relatively stable, c) auto ad spend is still 25% below the peak of 2006, and d) 65 new models are being introduced in 2011 v. 60 in 2010 and 40 during each of 2008 and 2009. All of these points suggest to us that growth in auto advertising should stay strong,” said the analyst.

“Rising gas prices will hurt vehicle sales,” is another comment Ryvicker said she heard. “While it is reasonable to conclude that rising gas prices will hamper vehicle sales (and therefore auto advertising) we conducted a regression analysis over the past 20 years that suggests there is actually is no correlation between the two. Though we do note there were two instances of rising oil prices and decreasing car sales, we believe those instances were different due to i) the magnitude of the oil price increases, ii) the state of the economy (back then we were just going INTO a recession – clearly we are currently coming OUT of a recession, and iii) the involvement of OPEC, which created a sense that the prior oil shocks were permanent,” was the analyst’s response.