This New Media Beats the Heck Out of Old Media
Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Twenty-First Century Fox (NASDAQ: NWSA) is the result of last week's completion of the News Corp breakup. 21st Century Fox kept News Corp's broadcasting and film assets, with the publishing assets spun off, and it now appears that the company is one of the top investment opportunities in the media industry.
Its holdings include Fox Entertainment Group, owner of the 20th Century Fox film studio, Fox TV network, Star TV, Italian TV provider Sky Italia, and stakes in BSkyB and Sky Deutschland. Fitted with a new logo and everything, 21st Century Fox is ready to take on the broadcasting industry.
21st Century's pro forma revenue breakdown should be around 35% for cable networks, film should shape up as nearly 30% of revenue, which includes live-action and animated motion pictures. Meanwhile, TV will be 19% of revenue and 15% for the broadcast-satellite segment.
Time Warner owns some of the most recognized entertainment brands, including Warner Bros., Turner cable networks (TNT, TBS, CNN) and HBO/Cinemax premium channels. Time Warner's revenue shakes down with content accounting for 41%, subscriptions 35% and advertising 21%.
Walt Disney (NYSE: DIS) operates the ABC Television Network and eight other TV stations that include ESPN and Disney Channel cable networks. Media networks account for over 65% of EBIT and includes the ABC broadcast network, 10 TV stations, and cable networks ESPN, The Disney Channel and ABC Family.
Unlike the other major media companies, Disney does have a strong presence in theme parks, making up nearly 20% of EBIT, including Disney World and Disneyland.
Revenue is expected to be up 7% in fiscal 2013 thanks to ventures outside of the maturing North American market. Disney is boosting operations in emerging economies such as Russia, China and India. In China, Disney has introduced the Shanghai Disney Resort, including Shanghai Disneyland. Disney has also recently taken a 50% stake in India's UTV.
CBS (NYSE: CBS) is the major media and entertainment company with diversified ownership interests in broadcast and cable TV networks and studio, outdoor properties and book publishing.
CBS' key segments include entertainment (over 40% of EBIT) -- which is the CBS networks, cable networks (24% of EBIT) include Showtime and CBS College Sports, and broadcasting (26% of EBIT) includes 30-owned TV stations.
CBS has long-term streaming deals for content with Netflix and a 14-year contract with Turner Broadcasting to divide rights-fees for the NCAA tournament. CBS also recently renewed its agreement with the National Football League through 2022.
Hedge fund feelings
At the end of 1Q, CBS had some of the most robust interest among major hedge funds, with 65 hedge funds long the stock, a 30% increase form the previous quarter. Coatue Management had the largest position among major hedge funds at $650 million and making up 8.2% of its 13F portfolio (see Coatue's top stocks).
Time Warner had 37 hedge funds long the stock, with Jonathon Jacobson's Highfields Capital having the largest position the stock, worth close to $245 million, accounting for 2.2% of its total 13F portfolio (check out Highfields' new picks).
News Corp had only 26 hedge funds long the stock, including billionaire Paul Singer of Elliott Management with a $310 million position that made up 6.5% of its 13F portfolio (see Elliott's newest picks).
The story in 4 charts
21st Century is now trading at a hefty discount to its peers. The lowest on a price- to-earnings basis...
And darn near the bottom on a price-to-book basis….
Its balance sheet also looks strong, with one of the lowest debt-to-equity ratios.
What's more is that 21st Century is also carrying one of the top profit margins…
21st Century appears to be a solid investment, and after shedding its publishing assets the company is much better positioned to compete with the likes of the other major media companies based on its leading profit margins and balance sheet. Meanwhile, investors could find some growth opportunities in Disney and CBS. Disney is undertaking overseas initiatives, and CBS is looking to refocus its portfolio by putting more attention on media with the planned spin-off of its outdoor advertising assets, which could be a catalyst to boost the stock's price.
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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!