Heading into the corporate earnings reporting season, one market researcher warns investors against traditional media stocks as the industry faces disruption from a rapid shift in consumer consumption habits and the entrance of new cash-rich competitors such as Wall Street darlings Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN). (See also: Goldman: Tech Regulation to Benefit NVIDIA, Cisco.)
Pivotal Research Group's Brian Wieser advises against buying media stocks on the dip, foreseeing little upside in industry consolidation and expecting weak fundamentals for video-centric media owners to continue into 2018. As a result, he downgraded Time Warner Inc. (TWX) from buy to hold, writing that its "value is driven by current trading levels of AT&T Inc. (T) under a presumption that the sale of the company goes through." The senior media and internet analyst maintained his hold rating on media plays 21st Century Fox Inc. (FOXA), Discovery Communications Inc. (DISCA), CBS Corp. (CBS) and Viacom Inc. (VIAB).
DIS 'Best Positioned' Among Traditional Media
Wieser attributed much of the weakness to cord shaving and cord cutting, which he indicates is eating away at subscriber bases and affiliate fee revenues. As old-guard industry leaders are pressured to reduce spending on traditional mediums, the analyst sees a negative impact to their advertising businesses.
Within the traditional media space, Wieser highlights Walt Disney Co. (DIS) as a bright spot, upgrading shares to hold from sell on the belief that in the longer-term, the company "appears to be the best positioned of the group" and therefore justifies a more expensive multiple.
Late last month, the analyst spoke in an interview with CNBC in which he recommended investors sell Facebook Inc. (FB), Snap Inc. (SNAP) and Twitter Inc. (TWTR) and opt for Google parent company Alphabet Inc. (GOOGL). He suggested that shares of Zuckerberg's social media giant should suffer from continued "systemic mismanagement" and "systemic sloppiness" this year. A FB bear before the Cambridge Analytica scandal, when the stock stock was still skyrocketing, Wieser notes limits to the company's growth in digital advertising and market share, as well as higher costs facing the tech titan. (See also: Netflix Skyrockets on Higher Subscriber Growth.)