Seeking Alpha
Profile| Send Message|
( followers)  

On Wednesday May 1, 2013 CBS Corporation (NYSE:CBS) announced its Q1 results. The summary of the results can be seen in the following table.

The company experienced significant growth, especially in its bottom line. Revenues grew by 6% YoY and 9% QoQ. Operating income of the company grew by 18% YoY and 10% QoQ, while EPS grew by 24% YoY and 18% QoQ. The growth was primarily driven by the Entertainment segment, which experienced a growth in revenues of 10% YoY and 28% QoQ, and a growth in operating income of 19% YoY and 57% QoQ. Thus, in this article, we will be focusing on CBS' Entertainment segment.

Entertainment Segment

Amongst the segments, the Entertainment segment has consistently been the most significant for the company, followed Local Broadcasting and Cable Networks. The segment's YoY growth in operating income was approximately 19% in Q1 2013 and achieved a CAGR in revenues over the past nine quarters approximately equal to 8%. Although the table depicts that the operating margin has been steady over the past 5 quarters, it has significantly improved from 12% in Q1 2011 to 17% in Q1 2013.

(click to enlarge)

As per the Q1 2013 report, the increase in the entertainment revenues was primarily driven by a 13% increase in advertising revenues due to the broadcast of Super Bowl XLVII. Another source of growth was from an increase in network affiliation and subscription fees, which will continue to benefit the company throughout the coming year. The company also experienced growth in CBS Interactive, which was ranked 9th in the top US web properties in March 2013 by comScore Media Metrix, with approximately 88.7 million unique visitors.

Advertisement

In terms of revenue types, CBS managed to post an 8% YoY growth in advertising revenues, making it the largest source of revenue for the company. The fastest growth in revenue in Q1 2013 came from affiliate and subscription fees, approximately 14% YoY, but it continues to be the smallest source of revenues for the company.

(click to enlarge)

Despite the increasing popularity of the internet and also persistent prediction of the end of the television era, nearly two-thirds of all advertisement dollars were spent on television advertising in 2012. And according to a survey, nearly three-quarters of the multi-screen consumers prefer watching an advertisement on a television. And within television networks, broadcast TV gained the highest market share at 22.9%, achieving a growth rate of 10% YoY. CBS was able to ride this trend and generate significant revenue growth, especially in the last quarter, and according to the management posting, some of the best results ever achieved by the company.

The large increase in revenues was due to the presidential election in the US, which had bolstered the number of advertisements on television. The high growth of advertisement revenues in Q4 of 2012 coincides with the US presidential campaigns. The advertisement spending was also affected in 2012 due to the Olympics. Such unique and historic events gave a massive boost to television advertising revenues.

(click to enlarge)

The chart above shows the predicted medium share in advertisement spending for 2015. As can be seen, television is expected to continue to dominate the advertising market in the world. ZenithOptimedia estimates the global advertising market to reach to $518 billion by the end of 2013.

According to one estimate, the ad market in the US is expected to grow at 3.6% and 4.4% in 2013 and 2014 respectively, however broadcast TV revenues are expected to drop, but only slightly in 2013. According to Moody's, broadcast TV ad revenues would likely drop in 2013, which had received a huge boost in 2012 due to the presidential election and Olympics. However, the institute expects broadcast TV ad revenues to reach its peak levels in a couple of years.

In my opinion, Q2 2013 will be a good one for CBS, as it will continue to see growth in revenues, coming from advertisements and syndication. However, it is likely that Q3 and Q4 of 2013 will experience a slowdown in revenues and earnings.

Conclusion

Given the strong growth achieved by the company in the past and the expectation of its core business to remain stable in the coming years, CBS will certainly achieve high earnings in the future, especially in the next quarter. With a dividend yield of around 1.2% and high buyback activities, this company is bound to provide high returns to investors. This is why I would give a buy recommendation for the company.

Source: CBS Corporation's Earnings Analysis And Expectations