CBS Earnings Preview: TV Advertising Market in Focus

July 29th, 2011 by Trefis Team
CBS: CBS logo
CBS
CBS
Share of TV Advertising

Source: Deloitte

CBS (NYSE:CBS) began turning around its business in 2010 with a combination of cost optimization and help from improving economy. This resulted in improved margins, a trend that we expect will continue in 2011 as well. The company plans to report its Q2 earnings on Tuesday, and so we take a look at couple of key trends to watch out for that may determine financial strength of the company in near future. CBS competes with other media companies like Disney (NASDAQ:DIS), News Corp (NASDAQ:NWS), Time Warner (NYSE:TWX) and Viacom (NYSE:VIA) in media business.

Our price estimate for CBS stands at $27.50, which is slightly below the market price.

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Health of TV Advertising Market

CBS is significantly dependent on the state of the TV advertising market, which in turn is tied to the general health of the economy. Although the economy has been slow to recover, the advertisement market has picked up as evident from last quarter’s results. A research report from Deloitte indicates that TV advertising will continue to grow in 2011 as well as 2012. [1] However we believe that CBS will be in the best position to report on how strong the advertising market is currently is and weigh in on its outlook.

To give an indication of how much the TV advertising market matters to CBS, we estimate that the CBS owned TV stations, CBS radio, CBS network and outdoor advertising together constitute about 54% to CBS’ stock, and these businesses are solely based on advertising (with CBS network getting some retransmission fee which still remains a small portion of its revenues).

Syndication and Recent Deal With Amazon Prime

Last quarter CBS reported some good developments in syndication business where it licenses its shows for multiple runs. To add to that, the company has recently signed a deal with Amazon Prime service to license its content for streaming. This should further help its TV licensing revenues and strengthen its syndication business. Therefore we expect the company to report positive developments and expectations concerning this business. We estimate that TV licensing constitutes about 14% to CBS’ stock.

See our complete analysis for CBS stock.

Notes:
  1. Television’s “super media” status strengthens, Deloitte Research [↩]