Ian Whittaker has been a City analyst for more than two decades, and what he doesn’t know about media, advertising and the creative services industry isn’t worth knowing. Here’s his monthly column for City A.M.
THE YEAR is going quickly. From an analyst perspective, a lot of that has to do with the fact that companies are seemingly publishing their results more quickly than ever. January used to be a quiet time for company results, with the results season really ramping up from mid-February and ending by the end of March. This year, the results season – at least for the US – has hit early: it is only early February, yet we have an update from most of the big tech firms and the likes of major media outlets such as Comcast and Netflix. What have we learnt so far?
Firstly, the markets are hugely volatile and the direction of travel remains unclear. The tech-heavy Nasdaq fell nine per cent in January but there has been a recovery off the back of a series of (generally) strong company results, particularly in the tech space, which has led to a flood of money back in the markets.
My view is that, short-term, volatility is likely to continue but, longer-term, the markets will continue to rise, not only because I do not expect government tightening to be significant but because of the attractiveness of the fundamentals.
NOT EVERYBODY DISAPPOINTS
Secondly, for the tech space in particular, the results season has been strong generally. Microsoft, Apple, Alphabet (Google) and Amazon all smashed through analyst expectations. Alphabet’s Q4 revenues grew 32 per cent year on year on what was a strong comparison, Microsoft beat analyst expectations by more than half a billion pounds for the prior quarter while Apple’s quarterly profits came in 10 per cent ahead of expectations (despite losing £4.4bn in revenue due to supply chain issues).
The message from all three was not only are we doing well now but we expect to continue to grow. Amazon was perhaps a little bit more mixed in its outlook but breaking out its advertising business highlighted the potential growth in new areas.
Yet when results have disappointed, the reaction has been severe. Meta fell more than 20 per cent off the back of its poor guidance, the first ever decline in daily average users (DAUs) and what was perceived to be a disastrous results call with analysts. It was not the only stock pummelled after concerns over guidance, with Netflix falling 20 per cent post-its fourth quarter results and Spotify more than 18 per cent both after having given disappointing guidance.
While there has been a bounce-back of sorts in some of these names, it is clear investor sentiment towards all the aforementioned stocks has been shaken.
The Netflix results also highlighted another factor, namely just how the streaming video wars are not only worrying the markets but sucking in huge levels of investment.
US cable giant Comcast stated its Peacock streaming services not only generated adjusted EBITDA losses of $1.5bn (£1.1bn) in 2021 but that these losses would swell to $2.5bn (£1.8bn) in 2022. The obvious question is will this investment ever generate a decent return – and that is starting to occupy the markets’ mind and the formal announcement by AT&T of its spin-off of its Warner Media assets into a combination with Discovery into a listed vehicle shows some firms are deciding the costs are just too high.
META NOT BETTER?
And what about Meta? There is no doubt that investors are increasingly concerned that the Metaverse, rather than representing a golden new opportunity, may just be a smoke screen to hide the failings of the ‘legacy’ business. First quarter revenue guidance of 3-11 per cent growth looks exceptionally sluggish against 20 per cent in the fourth quarter of 2021 and 37 per cent for all of 2021.
The fear is that Meta has not adapted quickly enough to the changing advertising world and that its product may be seen as dated. The comparison with Snap – which had been similarly impacted as Meta in the third quarter by changes to Apple’s advertising policy, making it harder to target consumers, but whose fourth quarter results blasted through expectations – is raising plenty of questions.
To end on a positive note, we are also seeing what might be deemed a recovery in the fortunes of the “traditional” media players. Pearson had its first profit upgrade in well over five years in its January trading update and its acquisition of work learning firm suggests it is moving strategically in the right direction. Meanwhile, agency giant Publicis beat its fourth quarter guidance, and posted an upbeat forecast of 4-5 per cent organic revenue growth for 2022, although questions remain on staff costs. Maybe there is life (and some tricks) left in the old dogs after all.