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Ad Sales Drop to Impact Fox, AMC, Discovery

With the Coronavirus infecting advertising sales revenue, cable network companies that depend on ad sales, including Fox, AMC and Discovery, will be looking at lower earnings for 2020 and 2021, analyst Michael Nathanson said.

Nathanson, of MoffettNathanson Research, said he is adjusting earnings estimates based on an assumption that advertising revenues, which have been weak, will fall an additional 11% in 2020 and 1% in 2021, as the economy is weakened by the pandemic.

For 2020, Nathanson sees Fox’s earnings before interest, taxes, depreciation and amortization (EBITDA) in fiscal 2020 down 6% from his prior estimate and down 18% in 2021. Cable network earnings will lose 2% in 2020 and 3% in 2021. Fox’s television unit’s EBITDA will be 32% lower and 103% lower because of the virus crisis.

At Discovery, Nathanson forecasts ad revenues being 13% lower than expected in both 2020 and 2021, leading to EBITDA being 7% lower that previously estimated in 2020 and 14% lower in 2021.

AMC’s national networks will see revenues reduced by 4% in 2020 and 5% in 2021 compared to previous estimates because of COVID-19. AMC’s adjusted operating income will be 7% lower than previously forecast in both 2020 and 2021, Nathanson said.

Nathanson also lowered his price target for those companies.

“What does this mean for valuation? We reiterate our view that despite the significant declines in stock prices today, we continue to believe investors should be cautious trying to catch a falling knife until the estimate revisions bottom out,” Nathanson said. “Given the uncertainty around the duration of this impact, we have even less confidence in our 2021 estimates.”