When the year started, influential Wall Street financial house MoffettNathanson was optimistic that the first half of 2021 was going to be “all blue skies” for broad patches of the traditional media and digital ecosystems.
After taking a close look at domestic digital advertising growth, Senior Analyst Michael Nathanson uses the word “only” to describe the acceleration in dollars for the GAFAN group.
What does this mean for broadcast media companies set to release their Q2 earnings reports?
For media owners, the story will be decidedly mixed.
Uh-oh.
Nathanson writes, “Heading into 2021, the U.S. economy was primed to roar back thanks to unprecedented fiscal and monetary stimulus. As such, the combination of easy advertising compares and a strong macro backdrop would create amazing headline results.”
But, when looking at advertising results tied to digital earnings reports, MoffettNathanson has consistently reminded all to look past “the glossy year-over-year compares to get a better sense of structural tailwinds.”
What did that lens yield? “Using a two-year stack, domestic digital advertising growth at Google, Facebook, Snap and Twitter has only accelerated with growth of +61% vs. 2Q 2019. Yes, 61%!”
What does this mean for broadcast media companies? The results could be all over the dart board.
“Conglomerates with returning flagship sports events like [ABC and ESPN owner] Disney and ViacomCBS or quickly scaling AVOD platforms (again) like Disney and ViacomCBS should be able to report aggregate Q2 2021 ad revenues close to Q2 2019,” Nathanson says.
That is the good news.
For those conglomerates absent big sports assets, such as WarnerMedia or NBCUniversal, be prepared for mid to high-single declines off of 2Q 2019. Why? Linear impressions have fallen sharply, Nathanson says.
“While cord-cutting has come in better than estimates and could slightly improve from our
forecast of -4.8% year-over-year declines, we believe shifting greater amounts of premium
content to AVOD and SVOD platforms, combined with the unbelievably high ramping of linear commercial inventory, will give consumers more and more reasons to cut the cord,” he adds.
As such, MoffettNathanson remains cautious when looking at investing in the media space “due to the many headwinds” impacting various companies. In fact, Fox is the only company bearing a “Buy” rating, due to “a combination of valuation, potential corporate action, the opportunity to grow Tubi into a larger business and its sports betting
optionality.”
Longer term, the best positioned company in the space is Disney, he concludes. Today, it is rated Neutral “due mainly to DTC valuation reasons.”
