Weekly Media Biz Report Card: May 4th Edition

Weekly Media Biz Report Card: May
VIP

Welcome to the second edition of VIP’s Media Biz Report Card, which is our weekly analysis of the past week’s most relevant media stories. This week’s Report Card will be slightly different from last week’s in that every company below reported its Q1 earnings, so we will be factoring in those results to each grade given. Grades will also be impacted by stock price changes over the previous week, but trading activity isn’t the ultimate deciding factor in the rankings. 

Here’s how top media companies look after the week of April 27-May 1:

Overachievers

Facebook (A+): Facebook excelled by simultaneously telling it like it is but also assuaging investor concerns about its ad biz amid the expected great ad pullback of the coronavirus era. Q1 ‘20 Facebook ad revenue was up 17% YoY to $17.4 billion, and Facebook execs suggested ad sales are stabilizing after a COVID-19-caused-dip in March. Even though Facebook CFO David Wehner was realistic on the call, saying that there could be “an even more severe ad industry contraction” in Q2, investors rallied behind the Facebook stock: FB share prices closed 4.9% higher on Friday than they opened at last Monday. This was the highest 5-day stock price percentage bump of any other company being analyzed in this roundup, aside from Imax (it really doesn’t make sense to give Imax the roundup crown in the COVID-19 era — more on that later). Bonus points for Facebook in this week’s roundup for essentially getting praise from Congress on Friday in its fight against coronavirus fake news. Yes, you read that sentence correctly. 

Spotify (A): Spotify gets good marks for surpassing certain analyst expectations, like monthly active users (286 million vs. 283 million expected) and paid subs (130 million vs. 129 million estimated), which is promising given March and April reports suggesting COVID-19 suppressed music streaming in some ways. Its letter to shareholders noted a “notable decline” in engagement in markets hit hard by coronavirus, but also observed that “consumption has meaningfully recovered” over the last few weeks. Also, Spotify’s growing exclusive podcast catalog (most recently buoyed by the acquisition of The Ringer) could help Spotify with user retention as COVID-19 continues to cause economic pressure in Q2. After all, podcast consumption on Spotify is continuing to grow at “triple digit rates” year-over-year. Spotify’s podcast company Anchor also last Tuesday intro’d a fitting-for-the-times tool that turns video chats (from platforms like Zoom) into podcasts, which could result in some quarantine-born audio gems finding their way to Spotify’s podcast catalog. Investors seemed into it all. The price of SPOT jumped nearly 10% after Spotify’s earnings and closed at 3.7% higher on Friday than it opened on Monday.

Alphabet (A-): Alphabet’s Q1 ‘20 overall revenue (minus traffic acquisition costs) of $33.7 billion beat estimates by roughly $1.1 billion, but like every other company this earnings season, spoke of the quarter being marked by several distinct phases and cautioned against lofty expectations for its business performance in Q2. Google’s year-over-year ad revenue growth showed signs of slowing during Q1, but the company offered suggestions that some ad revenue drivers like its search biz had seen declines start to level off. Investors rallied in response to the company’s earnings results, with Alphabet’s shares opening at $1,339 the morning after it reported, up 8.5% from its closing price the night before. Alphabet’s stock last week also probably benefited from Google Meet, which the company announced now has over 100 million daily participants and is adding almost 3 million users everyday. The rise of Google Meet is notable as Zoom continues to get tangled in PR headaches, and Alphabet chief Sundar Pichai even seemingly took a very light and very veiled shot at Zoom when speaking of Google Meet during the earnings call: “Schools and businesses in particular are using our secure video conferencing platform Meet.” — how can you not think of Zoom when you read “secure” in that context?

Just OK

Amazon (B+): Even though Amazon’s ad revenue growth is accelerating (44% in Q1 ‘20 vs. 36% in Q1 ‘19), which management implied was at least in part related to the strong traffic Amazon got throughout Q1, the e-commerce company’s stock still took a dive after it announced its earnings. That’s unsurprising given Amazon’s earnings per share miss ($5.01 vs. $6.25 expected) and announcement that it would spend $4 billion in operating profit on coronavirus-related expenses in Q2. But unquestionably rescuing Amazon’s grade this week is its renewal of its NFL rights pact. This is a big grab for Amazon because NFL games remain huge ratings drivers for traditional TV networks, and few of Prime Video’s biggest streaming competitors offer sports (although users can stream live NFL games on CBS All Access), let alone something as mainstream as the NFL. It’s not like the NFL games will result in a “Game of Thrones”-like download surge for Prime Video, but the games will make a Prime membership more enticing, especially when Amazon is now getting one exclusive football game to air every season. The rights renewal also signals Jeff Bezos may have bigger sports streaming ambitions for Amazon, and this is rather uncharacteristic of big tech, which has largely eased up on chasing exclusive marquee sports rights over the past few years.

Apple (B): Apple beat earnings and overall revenue estimates during Q1 ‘20 (Apple’s FY Q2 ‘20), but this was dampened by iPhone revenue not-so-surprisingly being down 7% year-over-year and the company declining to give guidance for calendar Q2 ‘20. Following the earnings report, AAPL’s share price slid by over 2%, a price dip that none of the overachievers in this week’s roundup experienced post-earnings. But what’s most striking about Apple’s recent earnings call is the fogginess that continues to surround anything related to Apple TV+. “Apple TV+” is mentioned only once on the Apple Q2 earnings call transcript. That one mention finds Apple TV+ unhelpfully lumped along with Apple’s other services (Arcade, News+, et. al) as something that’s “continued to add users.” That’s it. To be fair, this vague statement is technically more specific than last quarter’s Apple TV+ “update,” when Tim Cook said the service was off to a “rousing start” (whatever that means). Still, Apple has the cash on hand to keep spending on highly produced shows until something quickly propels it into need-to-have territory for a big group of people.

Skating by/On thin Ice

Twitter (C): Twitter’s stock was one of the most-punished last week among the companies in this roundup, with it’s Friday closing price of $27.84 being about 5% lower than its opening Monday price. The punishment seems to be in part a function of management’s inability to assure investors about the stability of Twitter’s ad biz to the same degree that fellow big tech players like Alphabet and Facebook did. Twitter offered that its ad rev declined from March 11-31 by 27% year-over-year in its shareholder letter, while Facebook said its ad revenue was roughly flat in the first three weeks of April compared to last year, for example. But even as Twitter most likely will report a more wobbly Q2 earnings, a bright spot for the company will be the fruits of its efforts to aid in the containment of the COVID-19 spread come next earnings call. Last Wednesday Twitter announced it would be making its tweets more accessible for researchers that want to study areas such as how coronavirus fake news spreads, for example. These types of efforts won’t necessarily save Twitter’s stock in the face of decelerating ad revenue growth in Q2 ‘20, but clamping down on fake news could help the company improve engagement on its platform, which could help soften the blow.

Imax (C): Would you expect a company that licenses its technology to theater chains to land anywhere else on this week’s report card? Imax posted a loss of $49.4 million in Q1 2020 as COVID-caused theater shutdowns pulled down on earnings. The next few quarters for any business are uncertain, but for those with an interest in the exhibition biz like Imax, things will be especially tricky as states grapple with differing timelines on when to reopen public venues like movie theaters. Sure, pent-up demand among cinephiles will be released to Imax’s benefit to some degree, but it’s clear that COVID-19 has changed attitudes toward movie-going in the near-term, and possibly even the longer term. In a late March survey of U.S. consumers by the CDC, 49% of respondents indicated they may return to theaters in “in a few months” or “possibly never,” and 28% said they will attend movie theaters less often once they’re safe. Still, it’s worth noting that Imax has operations globally in territories that are on different timelines to re-open public venues like theaters, which will help Imax as the U.S. theater biz remains in flux. China, which accounted for nearly one-third of Imax’s revenue in 2019, could reopen its theaters again in June

Comcast (C-): Comcast had a rough week, with its stock opening at 6% lower after its earnings call than it closed at the night before, as one might expect for a conglomerate that derives revenue from the advertising, theme park, and film exhibition biz in the coronavirus era. Comcast’s NBCU, which includes NBC Entertainment and Universal Pictures, reported revenue of $7.7 billion, down 7% year-over-year; its theme parks segment’s revenue dipped 32% year-over-year in Q1 ‘20. One vaguely bright spot during the company’s earnings is that Peacock is “pacing ahead” of NBCU’s internal forecast on monthly users and time spent, but it was a Tim Cook-esque first-quarter-post-new-SVOD-release update (remember Apple TV+’s “rousing start”) in that no solid Peacock metrics were given. But Comcast gets a pass on not announcing big numbers, especially since it’s only been available to certain Comcast customers since launch. What really dragged down Comcast toward the bottom of this week’s skating by-ers is the debacle with exhibitors refusing to play Universal films in the wake of Jeff Shell’s WSJ-“Trolls World Tour”-victory lap-induced statement that Universal would open titles on premium and in theaters at the same time moving forward.