CBS Is #1 In The Ratings, But Not To Investors

Shares of CBS Corp. (CBS) are being bid lower Wednesday after-hours following the company’s in-line earnings report.  The diversified media provider reported adjusted Q1 EPS of $0.05/share on revenue of $3.53 billion vs. estimates of $0.05/share on $3.45 billion.  Revenues grew 12% year-over-year.  Having more than doubled over the past year, in-line EPS was not enough, pushing shares down more than 3% after falling an additional 3% during regular trading.

The driver behind the Q was a growth in ad sales, which grew 17% YOY, and make up over two-thirds of CBS’ revenue.  The company, which happens to be even more levered to the ad market than its closest competitors, had just went in the black on TV ad sales for the first time in over two years last quarter.  Since then, CBS had reported that TV and radio ad sales were doing even better, but that the company planned to continue its focus on cutting costs and paying down debt.

CEO Les Moonves was pleased with the quarter, noting that CBS stands to benefit from political ad sales leading up to the mid-term elections.  He went on to say that CBS is, “enjoying a robust scatter market,” and remains “in first place” in terms of primetime viewers.  The scatter market refers to ads that are purchased near the time of the airing of a given program.  While important, the scatter market is far smaller than the general market, which is filled in advance.

Revenue was up 15% in the entertainment segment, which includes CBS television; up 8% in cable networks, which includes Showtime; down 6% in publishing; up 19% in local broadcasting; and up 3% in outdoor advertising.

Overall, CBS is a decent company in a cutthroat industry.  If you’re looking for a trade, I would look to go long on a breakout above $17.17 on high volume.  But if you’re looking for long-term exposure to the media space, I would recommend looking elsewhere.  As time goes on, these providers of conventional media will only find themselves in tougher and tougher spots.  If you must, I would to go long a company like Disney (DIS) before I would jump into CBS.  But I would probably be most inclined to get some media exposure through an indirect play like Akamai (AKAM), which specializes in expediting the delivery of streaming video.

Disclosure: No holdings in CBS, DIS, AKAM.

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