No US Media Business is Immune from Downturn, Opine Analysts

13 October 2008

NEW YORK: "No business is seen as immune from the expected slowdown in advertising spending," reported the Wall Street Journal on Friday after trawling a consensus of analysts.

Few think the crisis is near to bottoming-out. 
Stanford Group analyst Frederick Moran epitomizes the prevailing sentiment: "We're seeing credit lines freeze up, and any desire for advertisers to spend money is now basically gone, so Wall Street's estimates for 2009 probably still need to go lower."

Deutsche Bank's Douglas Mitchelson downgraded his earnings and revenue estimates for the entertainment sector, referring to the slowdown in the advertising market and the likelihood of a recession in the US and Europe next year.

He  slashed $502 million (£292m; €368m) from his 2008 ad revenue forecast for the entertainment sector to $44.1 billion – and  by an eye-watering $2.36bn to $42.37bn for 2009. His earnings-per-share growth forecast for the sector were more than halved – from to 10% to 4%.

John Janedis, a haruspice at Wachovia – itself flailing and saved from deep financial waters at the eleventh hour on Friday by Wells Fargo – predicts adspend declines of 0.8% in 2008 and 2009. His earlier expectations were of growth at 1.2% this year and 1.5% next year. 

As to the internet sector, although expected to fare better than traditional media, growth projections have been lowered. UBS analyst Ben Schachter is in like mode and, based on macroeconomic deterioration, has reduced his price targets on Google and Yahoo.

Assuming credence can be attached to the the opinions of an employee of a bank that less than six months wrote-down assets of $37bn, Schachter still favors a long-term buy-and-hold strategy on both firms, while warning against trading in either stock given that both are based on low valuations.

Says Schachter: "We view Google as somewhat better positioned for a recession than its peers, but we see no business model based on advertising or consumer spending that will be immune to a downturn."

Meantime, Merrill Lynch analyst Jessica Reif Cohen (who is to the US advertising and media world what the late Gracie Allen was to the science of syllogism) downed her current-fiscal earnings estimate for News Corporation from $1.22 a share to $1.15.

She also slashed her price target on the media giant's stock by 25% from $20 to $15, although in best Gracie Allen style she recommends it as a buy.

Cohen also gave the thumbs-down to Walt Disney shares, predicting that attendance at the company's iconic theme parks will suffer next year because of the economic slowdown.

"Rising unemployment will be the straw that breaks the camel's back," she opined. "We are hard pressed to believe that attendance will not fall in 2009 - people who don't have jobs simply do not go to DisneyWorld."

Amid the gloom and doom there's at least one Pangloss ... Stanford Group's Moran. "Investors that buy the high-quality, well-capitalized media plays over the next few months and hold on until things turn around should find themselves with strong gains when we come out of the other end of this."

But as American philosopher Eric Hoffer once said: "To spell out the obvious is often to call it in question."

Data sourced from Wall Street Journal Online; additional content by WARC staff