Amid signs the economy is weakening, analyst Anthony DiClemente of Barclay’s Capital has lowered his U.S. advertising growth forecasts.
“We believe that industry advertising estimates may be too optimistic” for the second half of 2011 and early 2012, DiClemente writes in a new research report dated Sept. 7. He lowered his ad revenue growth forecast for 2011 to 1.4% from 2.9% and his outlook for 2012 to 4% from 5.2%.
While older, traditional media will be most impacted, spending on online and TV advertising will likely be most resilient, according to DiClemente.
“TV advertising remains an effective way for advertisers to reach a broad audience and the scatter market remains in line for now according to our channel checks, although retail and auto trends are concerning,” he said. “In addition, the broadcast and cable networks locked in double digit CPM increases on greater volume in this year’s upfront, which helps mitigate some of the potential downside in a recessionary environment.”
DiClemente still recommends owning media stocks with less exposure to advertising, and downgraded his recommendation on Scripps Networks Interactive to underweight and upgraded Time Warner to overweight.
He says Time Warner generates just 22% of its revenues from advertising, compared with an industry average of 32%. Its other revenues come from affiliate fees and content revenues, insulating Time Warner shares from a macroeconomic slowdown. With its large library of TV content, Time Warner also has a good chance of increasing its digital revenue through licensing deals with streaming companies like Netflix, he says.
On the other hand, Scripps Networks Interactive generates 67% of its revenues from advertising, according to DiClemente. And with ratings soft at its key networks, “we therefore expect SNI will realize limited upside from ad sales in the scatter market,” he says.