In terms of cash flow generating abilities, Viacom and Comcast trade at price to cash flow from operations ratios of 14.4 and 7.3 respectively, compared to 18 for Google. (Netflix had negative cash flow from operations for the trailing twelve months.)
Finally, in terms of operating profit margins, Viacom, Inc. (NASDAQ:VIAB), Comcast, Google, and Netflix operating margins for the quarter ended March 31 were 27%, 20%, 25%, and 3% respectively. It seems like Google has the most attractive combination of growth and profit margins. However, Google has a market capitalization of $295 billion and the company may not be able to sustain its current growth without venturing into new and riskier businesses.
The final two characteristics of the value vs. growth are that Viacom and Comcast common stocks pay quarterly dividends for annualized yields of 1.8% and 1.9% respectively. In addition, during the quarter ended March 31 these two value plays repurchased significant amount of shares. Viacom bought back 11.7 million Class B shares for about $700 million and has $3.3 billion remaining for repurchase under its current authorization. And Comcast repurchased 13 million shares for $500 million and had $6 billion authorized for share repurchase at the end of the first quarter. The second sign of a value versus growth orientation is the companies’ price to sales ratios of 2.5, 1.7, 5.5, and 3.5 for Viacom, Comcast Corporation (NASDAQ:CMCSA), Google and Netflix respectively.
Conclusion
Paid-TV is not likely to disappear soon. However, established media companies such as Viacom, Inc. (NASDAQ:VIAB) and Comcast have clearly failed in competing with the faster growing companies such as Google and Netflix.
The old media companies are trying to keep ground by repurchasing shares, buying out other companies and entering in deals with new media companies. Buying other companies is much more expensive and riskier than growing organically and through innovation. It is clear that innovation at Viacom and Comcast Corporation (NASDAQ:CMCSA) has been less successful that at Google and Netflix. While Viacom, Inc. (NASDAQ:VIAB) and Comcast are valued as dividend paying value companies, there are no catalysts on the horizon that could help realize any hidden value.
On the other hand, Google and Netflix continue to grow their audiences. For example, Netflix is expected to add over 5 million net new adds to its domestic streaming service. And YouTube is increasing its ability to monetize on the more than 6 billion hours per month of videos currently watched on its web site as indicated in this recent article.
It is clear that the future of video production and distribution lies in the hands of the new technology companies. While the established media companies are not likely to disappear, they would certainly continue to lose ground due to their striking reluctance to innovate and adapt to the new media reality. In the current media war, investors are better served if they side with the faster growing Google and Netflix than the established (but in decline) media powers.
Delian Naydenov has no position in any stocks mentioned. The Motley Fool recommends Google and Netflix. The Motley Fool owns shares of Google and Netflix.
The article The Media War Is Raging originally appeared on Fool.com.
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