NEW YORK — Media stocks tanked Monday, led by Disney and AOL Time Warner in a dismal day on Wall Street that saw the Nasdaq fall to two-year record lows and the Dow Jones Industrial Average log its fifth-largest net loss ever, plunging 436 points.
A stream of company profit warnings and upcoming layoffs — Intel, Cisco and Yahoo! all came out with dire pronouncements last week — plus fears the Federal Reserve won’t move fast enough to head off a recession has investors truly panicked and bailing.
Media analysts continued to sprinkle downgrades like confetti at this grim party. As a result, many showbiz shares were changing hands at or near their 52-week lows.
Lower earnings across corporate America intuitively means less cash available for ad spending — which accounts for a big chunk of revenue at most media companies. Comparisons with this time last year look especially bleak since dot-com ad dollars have pretty much vanished.
This is a particularly sensitive time for broadcast networks approaching crucial upfront markets in May, where they seek the highest prices possible from advertisers for the upcoming TV season. Said advertisers aren’t likely to empty their wallets if they think an economic slowdown may continue into next year.
AOL-TW shares fell 8.4% to close at $39.27 — some of that spillover from Yahoo!’s profit warning last week, despite efforts by AOL-TW execs to distance their giant company from its much smaller and more advertising-dependent rival.
Jordan Rohan, an analyst with Wit Soundview, made a splash by slashing his price target on AOL-TW to $60 from $80, citing a deteriorating economy and softer ad market. He thinks the newly merged company will shift some of the burden for its ambitious growth projections to the Warner Bros. film division, expected to rake in the bucks with the domestic theatrical release of “Harry Potter and the Sorcerer’s Stone” this fall.
Rohan and others also said a price increase for AOL’s flagship Internet service, which hasn’t been factored into the projections, could goose the company’s numbers. Execs are toying with the idea of a price hike but have reportedly been reluctant to move forward so soon after the closing of the controversial merger.
Meanwhile, Credit Suisse First Boston analyst Laura Martin cut her fiscal 2001 earnings estimates for Disney to 95¢ a share from $1.05 on weaker TV ratings and ad sales. She cited declines in ABC’s juggernaut “Who Wants to Be a Millionaire” and a $30 million-$50 million write-off in the current quarter from Disney retail stores. Others noted that the theme parks may be pinched if households cut back spending and family vacations get canceled.
Still, Martin kept a strong buy rating on the stock and a 12-month price target of $45. Mouse shares fell 7.4% to $27.51. Disney is the only media stock that’s part of the DJIA. It fell even more than the benchmark index, which was down 4%.
Martin weighed in on Viacom, too, seeing wider per-share losses for the March quarter due in part to the conglom’s Infinity radio division, which has been pressured, like others in its sector, from a dip in local advertising.
She cut her price target to $65 from $70, helping knock Viacom shares down by 8.56% to $45.31.
Viacom chief operating officer Mel Karmazin has been among the most upbeat in the face of a slowing economy, insisting that corporations need to advertise even more when the going gets tough to boost sales and compete.
He’s also noted that foreign automakers stepped into the advertising void left by beleagured U.S. car companies earlier this year. And he continues to predict an uptick in the second half of the year. He’s said, and Wall Street tends to agree, that CBS’ powerful Thursday night lineup will make it a valuable cash generator.
Rupert Murdoch’s News Corp. fell 6.53% to $32.65 — a nasty belated birthday present for the chairman CEO, who turned 70 on Sunday.
Skittish investors, on the lookout for negative news, are skeptical the company will be able to clinch its much ballyhooed combination with GM’s DirecTV.
News Corp.’s Fox Entertainment unit followed its parent lower, easing 7.04% to $21.38.
Vivendi Universal dipped 3.87% to $63.30 despite a generally upbeat earnings report from Paris on Friday.