Madison and Wall: Saturday Summary
For the week ending October 21, 2023: Results and Data From Disney, Netflix, Omnicom, IPG, Havas, P&G, Nestle, L'Oreal and more
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Earnings season was progressing in earnest this past week, with several additional agency holding companies reporting. Headline organic growth figures for Omnicom, Interpublic and Havas showed growth of +3.3%, -0.4% and +4.3%, respectively.
Meanwhile, Netflix posted results that were substantially above analysts’ expectations, resulting in a significant pop to the stock. With the company’s enterprise value now very close to $200 billion, it’s worth contemplating that Hulu, whose revenue will be around $11 billion is approximately 1/3rd the size of Netflix in terms of revenue (Hulu’s profit is much harder to calculate from the outside). As Comcast and Disney are going through their valuation exercise to determine how much cash Disney will need to pay Comcast for the latter’s stake, the boost in Hulu’s closest peer would seem likely to have some kind of effect on the transaction, which will surely involve a valuation that is well in excess of the floor price established in 2019 at $27.5 billion.
But at least now that we can see how much money Disney makes from ESPN, so that if a transaction were needed to fund the Hulu consolidation payment, we’ll now have a much better idea of how much Disney’s sports assets are worth.
Of course, it won’t likely be growth expectations advertising that drives value for any of these entities. I’ve regularly articulated why TV advertising revenue is likely to be weak going forward, but new this week I calculated the decline in available ad inventory that television will experience in the coming years, which doesn’t help. It shouldn’t really be surprising, although I think some hadn’t paused to consider this: if viewing is stable, but the number of people getting ads and the loads of ads are lower on the fastest growing part of the TV business, it shouldn’t be surprising that ad inventory will become scarcer and scarcer.
Regardless of how TV plays out as an ad-supported medium, marketers will keep increasing their spending to promote their goods to consumers one way or another. Data we saw this week from P&G, Nestle and L’Oreal reinforce the notion that many of the world’s largest advertisers are able to drive increases in spending, if only because their revenues continue to hold up well, too.