Investors in media stocks can be forgiven for believing they have been living in End Times. For the past few years, the tech sector dominated the headlines, and was also where the biggest returns lay (unless, of course, you happened to have bet the farm on Uber or Lyft).
The widely used acronym FAANG (Facebook, Apple, Amazon, Netflix and Google) attached an aptly serpentine name to traditional investors’ angst. Where was the upside, the thinking went, for pay-TV providers, studios, movie theaters and cable network programmers in these times of massive disruption?
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A closer look at the year-end numbers, though, shows that traditional media shares staged something of a comeback in 2019, even though high-fliers like Apple, Roku and Facebook posted bigger gains.
As 2019 trading officially ended Tuesday, we crunched the numbers for 30 core stocks. Some are pure media companies, of various sizes and compositions. Others are companies with significant holdings in telecom, hardware or digital businesses that have also accumulated significant positions in Hollywood along the way. The “Deadline 30” could easily be the Deadline 40 or even 50, some green-eyeshade-wearing readers may cluck, but these 30 as a group offer a distilled gauge of media and entertainment writ large.
The biggest media conglomerates – Disney, Comcast and AT&T – posted healthy increases of 33-41% as investors cheered many of their strategic moves. Discovery, in its first full year after closing its acquisition of Scripps Networks Interactive, powered up 27%. Sony Corp., which reaffirmed its commitment to its entertainment assets, saw its New York-listed shares jump 40%. Much of the decision-making at media companies revolves around long-awaited pushes into streaming, and their moves can move the market. Disney shares spiked 10% the day after it lifted the veil last spring on its plans for Disney+, which went on to draw 10 million sign-ups in its first day. While sign-ups are not the same as actual subscribers, investors have continued to reward the ventures, which follow years of perception that old media was having its lunch eaten by Netflix and its ilk.
Speaking of Big Red, it is worth noting that the onetime envelope shipper had a muted year compared with recent upturns as a tug of war unfolded between bulls and bears. Fans on the Street insist Netflix has built a competitive moat with thousands of engineers on the payroll, a singular user experience and brand, key talent relationships and a global footprint. Naysayers point to its debt load and new streaming rivals emerging, maintaining Netflix will be forced to raise prices and sell ads, both of which will limit its growth.
Our list of top gainers is led by Roku, whose user interface is now in one out of every three smart TVs, with its ad-supported Roku Channel and third-party app distribution businesses on a steep growth curve. With new streaming services like Disney+ gaining significant audiences via Roku, this was the year Wall Street finally took note of the company – though volatility in its share price reflected ongoing debate about its proper valuation.
Apple, meanwhile, shrugged off a slump in iPhone sales in the 2018 holiday quarter and saw its stock price nearly double, making the company worth more than $1 trillion. As it looks to ease its reliance on hardware sales, Apple added more offshoots of its fast-growing services unit, which was initially fed by the App Store and Apple Music. The tech giant is now selling credit cards, bundled video game and magazine and newspaper subscriptions and, of course, streaming video through Apple TV+.
The list of top gainers had two surprising names: Charter Communications and Altice USA. While both are known for operating major cable systems, Spectrum and Optimum, they also have prospered even as customers cut or shave the pay-TV cord. Both make handsome profits selling broadband service – a must-have even for those who say they must not have traditional TV.
The clouds have not parted over the tried-and-true players in media, of course. ViacomCBS and Fox Corp. remain show-me stories after beginning trading this year in the wake of major M&A deals (the Disney takeover of most of 21st Century Fox and the long-awaited reunion of Viacom and CBS). Steep drops by the stocks of Lionsgate, AMC Entertainment and AMC Networks offered bears ample opportunity to pick holes in their business models. ComScore’s No. 1 finish on the naughty – er, top decliners – list had little to do with the measurement firm’s business model. Rather, it was a CEO shuffle amid accounting irregularities sending investors to the sidelines, though shares ended the year in a steadier state.
While publicly traded companies take up most of the oxygen in the media, entertainment and tech sectors, several privately held firms made waves in 2019 and will be factors in the 2020 landscape. Endeavor Holdings decided at the last minute to call off its long-planned initial public offering in September. Insiders cited the same choppy market conditions that led many high-profile IPOs to fizzle, while IPO candidate WeWork failed to go public and nearly dissolved altogether.
Univision last summer signaled it would be looking to swing an M&A deal, with private equity backers looking to cash out. But as it heads into 2020, the Hispanic media giant remains intact.
MGM, meanwhile, is less than a decade removed from a Chapter 11 bankruptcy proceeding. Successfully in the black and now the sole owner of premium network Epix, the company is seen as a ripe acquisition target, along with Sony and Lionsgate, as larger media and tech players look to bulk up their libraries.
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