Steve Birenberg's  Instablog

I have been following advertising forecasts closely for many years.  I have long thought that Zenith Optimedia provided some of the best forecasts and had the most insights into big picture trends.  However, Zenith has been way behind the curve on this downturn.  As a result, I find little value in their latest forecast cut which was outlined in Tuesday's Wall Street Journal.

Zenith now sees US ad spending at -8.7% vs. a prior forecast of -6.2%.  The new global forecast is -6.9% vs. +0.2%.  The prior forecasts were made at the UBS Media Conference in December 2008.

My thought reading this Journal article was "Zenith, tell me something I don't already know." I think that the lowered forecast contributed to lagging performance in ad-supported media stocks on Tuesday.  If that is correct it is an overreaction and media stocks could rebound if the market turns up soon.

SNL Kagan (http://www2.snl.com/media_comm/) has an article out today discussing the potential upgrade to 4G wireless networks.  The article quotes a recent forecast (http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html) from Cisco Systems (CSCO) with some astonishing statistics:

The weekend box office for the top 12 films was up 61%.  It was the second best April weekend ever, trailing only last weekend.  It was also the best ever Easter weekend.

The top three films all performed well.  Hannah Montana The Movie met high expectations with $34 million and provided a much needed boost for Disney (DIS), which had been in a box office slump.  Fast and Furious held well at #2 given the genre and massive opening weekend.  Monsters vs. Aliens firmed up, falling just 30%, taking full advantage of school vacations on Good Friday.  Dreamworks Animation (DWA) is now looking at a solid North American performance for the film relative to expectations.

For the theater stocks, the news is all good.  Look for more estimate increases and higher stock prices for Regal Entertainment (RGC), Cinemark Holdings (CNK), Carmike Cinemas (CKEC), and cinema advertising leader National Cinemedia (NCMI).

Telus (TU) reported disappointing subscriber metrics for 1Q this morning.  Net adds of 48,000 fell short of estimates of 75,000 to 100,000.  Even worse, ARPU declines accelerated falling to $58.39, down 5.6% vs. a year ago.  Nott surprisingly, the shares are taking a hard hit, down more than 10%.  The news is dragging all Canadian telecom lower including BCE and Rogers Communications (RCI).  The big risk ahead is for RCI's 1Q.  RCI gets over half of revenue and EBITDA from wireless.  RCI is particularly strong in smartphones whereas TU has a low end bias so it is possible that RCI holds up if Canada ends up looking like the U.S. where smartphones remain healthy.  RCI still has a premium multiple despite the shares finally succumbing.  I'd be careful on the long side ahead of earnings.

Discovery Communications (DISCA) has been one Northlake's best performing stocks. The stock was purchased in mid-September prior to the market crash at $16.50. Today, I trimmed the position across most client accounts at $17.83. Pretty amazing that any stock, let alone a media stock, is above its pre-crash level. With most all other holdings down sharply since the DISCA purchase, the position size had swelled to north of 4% in many accounts. Obviously, I still like DISCA as I did not sell the entire position. However, I still see the market and advertising environment as fragile so I want to avoid concentrated positions. DISCA has less margin for error due to its well-earned premium multiple of earnings and cash flow. 1Q earnings are due later this month and I do not think there will be a disappointment. The last two quarters were positive surprises. The key metric will be domestic advertising advertising growth. Expectations are for flat growth (that is excellent compared to -5% to -10% for most media companies). Here's hoping that my sale proves wrong so Northlake clients make more money on their remaining DISCA positions.

Pretty much everyone is now expecting a June introduction of a new iPhone model.  Most people expect an upgrade to the 3G but a few hold out for a second form factor that would have a lower price and allow cheaper data plans.  Rumors are rampant about upgraded prodcution schedules in the Far East.  Most of these articles indicate that the production increases are dedicated to building inventory for the new product.  That is most surley the case but I have been wondering lately about demand trends for the current version.  Anecdotally, I see iPhones everywhere.  I have to admit I look for them and I own one myself.  I am also long Apple.  I also live in the north suburbs of Chicago where Macs are hugely popular and every kid has an iPod.  Apple reports 2Q09 shortly.  As usual, gudiance is what will drive the stock.  But the quarter itself hinges on demand for iPhones and Macs.  No doubt now that iPods are saturated and will suffer a significant sales decline (possibly next quarter due to new shuffle pipeline fill but ASP will be down).  Many analysts have been expecting a weak quarter for iPhones and Macs.  Could it be that iPhone 3G demand is strong and some of that production is to meet current demand? RIMM certainly indicates that smartphone demand is good.  I believe smartphones are a rising tide lifts all boats story for 2009.  Could Apple be in for beat and rasie?  Ok, that is asking too much but how about a beat and guidance that matches analyst estimates?