‘Perfect Storm’ wiped out nearly $400bn from the value of big US media groups this year

The largest US media companies have collectively lost nearly $400 billion in market value this year as recession worries, an advertising slump and post-pandemic viewership trends set off a “perfect storm” for Netflix and its peers. “ignited.

big US Media Shares have fallen an average of 35 percent since the start of the year, while the S&P 500 index has lost 13 percent, resulting in a total loss of $380 billion in market capitalization.

Even after recovering somewhat over the past few weeks, the stock prices of the largest media groups – Disney, Netflix, Comcast, Spotify, Roku, Fox, Paramount, Warner Bros. Discovery, The New York Times and News Corp – have halved on average. Huh. According to an analysis by the Financial Times, the coronavirus pandemic reached an all-time high.

Executives and analysts blamed a confluence of factors for its burst. Netflix-Fuel bubble in media stocks.

As the US and other countries emerge from the pandemic, people are spending more time outdoors and less time at home looking at screens. At the same time, Netflix revealed that its decade-long growth has stalled, leaving investors clueless about the health of the industry as a whole.

These problems coincide with widespread fears of a recession in the US, as central banks raise interest rates to tame rising inflation and the US struggles with tighter domestic budgets.

Advertising, usually the first line of spending that companies cut back in a recession, is already slowAs shown in the second quarter results of Snap, Meta and Google.

“How bad is the pandemic trajectory? How big is the economy? How much longer do people want to be outside? “There are a lot of factors right now,” said Lightshade analyst Rich Greenfield. “I’d call it almost the perfect storm to blow up the streaming story.”

Companies that rely the most on streaming and advertising for revenue have suffered the most.

Shares of Roku, which made a name for selling streaming devices but now generates more revenue from advertising on its channels, are down 65 percent this year and 83 percent from an all-time high hit in July 2021.

“We’re seeing advertisers worry about a potential slowdown, and so we’re seeing them reduce their spending,” Roku Chief Executive Anthony Wood told investors last week.

Michael Nathanson of media consultancy MoffettNathanson said: “[Roku’s] Like many others over the years, the recent results were fueled by a massive fast forward in streaming video that has now faded as the world opens up. ,

“We are living through the first digital advertising recession,” Nathanson said, following a pandemic-fueled online advertising bubble “the likes of which we have never seen before”.

Netflix performed the second worst after Roku. Its shares have fallen 62 per cent this year and have fallen 67 per cent from their November highs. Spotify, another streaming pioneer that makes most of its money from subscriptions, has dropped 49 percent this year.

After a decade of subscriber growth, Netflix has lost subscribers for two consecutive quarters, prompting a fundamental re-evaluation of the industry.

Investors were previously excited about Netflix’s growth, making the company one of the most successful stocks of the decade, along with Facebook, Amazon, and Google. He treated Netflix like a tech stock, rewarding its rapid growth at the expense of profit.

Other media conglomerates, such as Disney, copied the Netflix model with their streaming services. In doing so, he was rewarded with a price-to-earnings multiplier similar to that of Netflix and tech companies. On average, at the end of last year, the largest US media groups traded at multiples of 49 times earnings. Now that multiplier has come down to 19 times.

Media groups that still primarily operate in the traditional businesses of television and film have fared the best. Retransmission fees — payments that cable companies make to carry broadcasters’ content — tend to be more stable than advertising because contracts are often tied for years.

Fox, which makes most of its money from retransmission fees for its news and sports cable channels, has fallen just 9 percent this year and 24 percent from last year’s highs.

Disney, which generates billions of dollars every year from theme parks and tickets to its blockbuster movies in addition to streaming, has dropped 30 percent this year. The group had traded at a multiple of more than 100 times its earnings last year. It is now trading at 45 times earnings.

Lightshade’s Greenfield said: “From believing in the streaming future, to recognizing it has made a huge difference . . . the streaming future isn’t nearly as profitable or as valuable as people thought.”

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