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Bear of the Day: Grupo Televisa (TV)

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Grupo Televisa, S.A. (TV) is the largest media company in the Spanish-speaking world. It operates four broadcast channels in Mexico city and produces and distributes 25 pay-TV brands for distribution in Mexico and rest of the world. It exports its programs to the US through Univision and to other TV networks in over 50 countries.
The company also has interests in direct-to-home (DTH) satellite services, publishing, music recording, radio production and broadcasting, professional sports and show business promotions, paging services, and feature film production and distribution.
Disappointing Results
The company reported disappointing financial results for Q2 of 2015, with net income down almost 34% year-over-year. Earnings per Global Depository Shares (GDS) came in at $0.15, significantly missing the Zacks Consensus Estimate of $0.30.

Quarterly consolidated net revenue of about $1,370 million was up 8.5% year-over-year but was short of the Zacks Consensus Estimate of $1,485 million, primarily due to weaker-than-expected advertising revenues.

Gross margin was down at 46.7% compared with 47.5% in the same quarter a year ago, while operating margin was 20.1% down from 25.2%  Consolidated operating income stood at $275.6 million, down 13.3% year-over-year.
Per Scotia Bank, “16.4% YOY drop in advertising sales reported in Q2/15 (nearly reversing to Q2/11 levels) is not just the result of tough comps, but of a structural long-term change in audience trends.”

Downward Revisions
After weak results, analysts have slashed their estimates for the company. Zacks Consensus Estimates for the current and the next fiscal year are now $1.03 per share and $1.15 per share respectively, down from $1.19 per share and $1.30 per share, before the results.
The company has missed Zacks Consensus Estimates in all of last four quarter, with an average negative quarterly surprise of 43.91%.
Increasing Competition
The Mexican telecom regulator has identified Televisa as a dominant player in the broadcast market.  Thus, the company may face more stringent regulatory measures, going forward. Mexico’s new telecommunications industry reform will allow America Movil to enter the broadcasting market, which has been dominated by Televisa for a long time. This may further hurt Televisa’s advertisement sales.
The Bottom Line
While the company has a leading position in Spanish language content and pay-TV industry in Mexico, the plunge in advertising revenues indicates growing headwinds for the company. The company may however benefit from its ownership stake in U.S. broadcaster Univision, which is expected to launch its IPO later this year.
At this time, investors could do better by looking at some of the “Buy” ranked stocks in the industry, including Entercom Communications Corp (ETM), Sky PLC (SKYAY) and Gray Television (GTN).
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