In the first nine months of 2005, Univision's share price declined 9.5 percent. Entravision and Spanish Broadcasting System (SBS), the two other publicly traded Spanish-language broadcasters, fell 8.5 percent and 37.7 percent respectively (see chart, "Hispanic Broadcast Stock Values"). The total market capitalization for the three companies declined an impressive $1.2 billion.
But revenues continue to climb at all three broadcasters.
Philip Remek, media analyst at the brokerage firm Guzman & Co., explains this paradox of rising revenues and falling share prices in terms of investor expectations. In short, the deceleration in ad spending growth, documented by data in the Hispanic Business Media Markets Report, has caught the attention of Wall Street.
"Those stocks all had high-value multiples, high expectations for growth over the long-term – and yet it is a cyclical business," says Mr. Remek. "People were expecting much higher growth rates in general out of those three stocks, and that explains the positive [revenue] growth but slumping share price."
"Growth rates aren't as fast as investors thought one to two years ago," says Kit Spring, research analyst at Stifel, Nicolaus & Co. "The main issues are that the supply of Hispanic media is growing. English TV and radio stations are switching to Spanish, so existing players aren't getting all of the upside. Those three companies – Univision to a lesser extent – are leveraged to businesses that are slowing due to new media, mostly the Internet, but also satellite radio, TiVo, and others."
Univision As Direction Setter
Marla Backer, an analyst with Research Associates/Soleil Securities, sees Univision as the leader that sets the direction for how the other stocks trade. At Univision "there has been top-line growth, but not much bottom-line growth," she says. "There's concern that growth has slowed, and the company may not be able to monetize its recent [television] ratings gains. And even though we have revenue growth, it's still not a cheap stock."
Ms. Backer also puts Spanish-language broadcasting against the background of the U.S. economy. The stock market in general has not performed well in 2005, and media stocks in particular have suffered. "The market goes down, so there's negativity about media stocks," she explains. "Now if Univision were still outperforming the market as expected, investors might say, 'If I want to be in media, I'll move to Univision.' But that's not happening."
Market Shifts Seen on the Street
Mr. Spring attributes the doldrums of traditional media stocks to competition from new media. "All that growth at Yahoo and Google comes out of the hide of publishers or broadcasters," he says. "Among Fortune 500 corporations, the proportion of their ad budgets is shifting from broadcast to online."
Long-term demographics also affect the stocks' popularity. "The [Hispanic] consumer growth is not at all ambiguous; it is very clear. It will last for at least another generation," says Leland Westerfield, an analyst at investment bank Nesbitt Harris, as quoted by The Wall Street Transcript.
However, as the Hispanic audience shifts from Spanish to English, it could erode the broadcast market, especially for the biggest player. "For Univision in this decade, the opportunity is to invest not only in winning over brand marketers to the Hispanic media environment, but also to invest in the programming to bilingual Hispanics," Mr. Westerfield says.
