Discovery outperformed even if OWN didn't


Discovery Communications produced a strong Q4, beating Wall Street expectations with its financial results. So the overall company is moving forward, even as most of the publicity that Discovery gets tends to focus on the disappointing ratings and revenues at OWN: The Oprah Winfrey Network.

Q4 revenues rose 11% to $1.12 billion, beating the Wall Street consensus by 10 million bucks or so. Profits jumped 76% to $336 million, or 86 cents a share.

At Barclays Capital, analyst Anthony DiClemente declared the ad growth “best in show.”

“Discovery’s 4Q results were relatively in-line after adjusting for one-time items, but the company put up an impressive 17% domestic ad growth in the quarter, well above its peers. The 2012 outlook was mixed, as Street estimates sit at the low-end of the company’s revenue and OIBDA guidance, but the net income guided range was below consensus. Core trends remain intact, but new joint venture networks OWN and The Hub could remain a drag to EPS in 2012. Discovery has posted above average ad growth for several quarters now, but valuation remains somewhat stretched with shares trading at a 25% premium to the group, and therefore we reiterate our 2-Equal Weight rating,” DiClemente said in a note to clients.

The best news was the company’s strength in US ad sales.

“Discovery posted 17% growth in domestic advertising in the 4Q, above our 13% estimate. Discovery said that 1Q domestic advertising is off to a ‘solid’ start with scatter cancellations in-line with last year and is expected to increase in the low double digits, better than our previous high single digit forecast,” the analyst added.

CEO David Zaslav (pictured) was upbeat about the current year in his conference call.

“Looking out to 2012 on the domestic ad front, we are off to a great start. And while it’s still early, with a strong upfront under our belts, a strong and steady scatter pricing environment, cancellations in line with a year ago and meaningful momentum across our portfolio, we are optimistic that 2012 will be another year of solid ad growth domestically,” Zaslav said.

In the Q&A session, the CEO insisted that the OWN venture with Oprah Winfrey will pay off.

“We took a platform that was in 80 million homes, and we’ve done a very good job of building the two revenue streams. We’ve done deals with most of the distributors for meaningful subscriber fees, and on the advertiser side, we have good advertising support. We’re up for about a year. The mission is to grow an audience. If we grow a meaningful audience that wants to spend time with OWN, and we think that we will, this will be a very significant asset. It takes time to do that. We now have Oprah. She was on the air on this past Sunday night. She was on last night with an Oscar special. She’s on with a Whitney special tonight. She’s very engaged. We have a good team, a team that she has confidence in and I have confidence in now. And over the next year or two, if we build that audience, this is going to be a very strong asset. So we feel good about that,” said Zaslav.