Download Year over Year Change

Ignite!
OAAA/TAB National Convention & Trade Show
Marci L. Ryvicker, CPA, CFA
Los Angeles, California
May 2013
All estimates/forecasts are as of May 15, 2013, unless otherwise stated.
Please see page 30 for rating definitions, important disclosures and required analyst certifications.
Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports.
As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of the report and investors should consider this report as only a single factor in making their
investment decision.
Advertisers: What is most important to you?
REACH OF TARGET AUDIENCE
EASE OF USE
MEASUREMENT
CONSISTENCY
RETURN ON INVESTMENT
Source: Wells Fargo Securities, LLC
1
How Does Out of Home Stack Up?
REACH
OUT OF HOME
RADIO
X
NEWSPAPERS
INTERNET
X
TELEVISION
X
Source: Wells Fargo Securities, LLC
EASE OF
USE
MEASUREMENT
CONSISTENCY
ROI
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
2
2
Wells Fargo Analyst Survey
We surveyed all 60 Wells Fargo equity
analysts and asked them ONE question:
DO YOU ANTICIPATE YOUR SECTOR(S) TO:
INCREASE,
DECREASE, or
MAINTAIN
AD SPEND OVER THE NEXT 12 MONTHS?
Source: Wells Fargo Securities, LLC
3
3
Wells Fargo Analyst Survey: The Results
Rank Category
% of Revenue
Expected in ‘13
1
Misc. Services & Amusements
18%
Increase
2
Media & Advertising
10%
Increase
3
Retail
9%
Increase
4
Restaurants
8%
Increase
5
Public Trans., Hotels & Resorts
7%
Increase
6
Financial
7%
Same
7
Communications
6%
Increase
8
Insurance & Real Estate
5%
Same
9
Government, Politics & Orgs.
5%
Decrease
Schools, Camps, Seminars
4%
Decrease
10
Source: OAAA and Wells Fargo Securities, LLC
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4
Wells Fargo Analyst Survey: The Results
Increase
Stay the Same
Decrease
Agriculture
Machinery
None! 
Auto
Railroads
Beverages
Tobaccos
Food
Utilities
Software
Source: Wells Fargo Securities, LLC
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5
The Digital Revolution
“We are changing the world with technology.”
--BILL GATES, Co-Founder, Microsoft
Source: Thomson Reuters and Wells Fargo Securities, LLC
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6
WHAT Is Digital?
MOBILE
INTERACTIVE
SEARCH
QR CODES
VIDEO PRE-ROLLS
POPUPS
ONLINE RADIO
VIRAL MARKETING
BANNER ADS
E-MAIL SPAM
DIGITAL BILLBOARDS
Source: Wells Fargo Securities, LLC
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7
Digital: The Opportunity
DIGITAL REVENUES AS A % OF TOTAL REVENUE
Digital as a Percent of Total Revenue
100%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
~5%
~5%
Television
Radio
12%
14%
Newspapers
Outdoor
0%
Source: TVB, OAAA, RAB, and Wells Fargo Securities, LLC estimates
Internet
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Digital: The Competition
GROUPON – A possible flash in the pan?
• Gross margin declined 9 consecutive Qs
• Trades 66% lower than IPO price
• S&P up over 30% over same time frame
PANDORA – Still tweaking its business model.
• Just instituted a 40 hour cap
• At what price??
Source: Company data and Wells Fargo Securities, LLC
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9
Digital: Your Audience Is Changing
• TELEVISION – Time Shifting
• DVRs are now in 40% of TV homes vs. 20% in ’07
• VOD – hundreds of thousands of choices
• 40+ % of viewers time shift the BEST PT shows
• NEWSPAPERS – Source Shifting
• Print circulation is down ~20% since ‘03
• But online revenue is UP 150%
• RADIO – A Shift in the Dashboard
• TSL to terrestrial radio continues to decline
• But over 89 million Americans now listen online –
more than double from 5 years ago
Source: Nielsen, RAB and Wells Fargo Securities, LLC
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10
Digital: Your Audience Is Changing
• Facebook is used by:
• 72% of women and 62% of men
• 73% of adults 30-49 year old
• 57% of 50-64 year olds
• Twitter is used by:
• 15% of women and 17% of men
• 18% of 30-49 year olds
• Pinterest is used by:
• 25% of women and 5% of men
• 19% of 18-29 year olds
• 19% of 30-49 year olds
• Instagram is used by:
• 16% of women and 10% of men
• 18% of 30-49 year olds
Source: Wells Fargo Securities, LLC
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11
Digital: The Bundle
• THE GOAL: CREATE CUSTOMER STICKINESS
• Example: The Cable Triple Play
• Video
• High Speed Data
• Phone
• THE GOAL: GRAB SHARE OF WALLET
• Example: Added Home Security to Bundle
Source: Wells Fargo Securities, LLC
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The Economy: Advertising Is Cyclical
10%
+10%
+8%
+6%
+6%
+5%
5%
+3%
Year over Year Change
+1%
-1%
0%
(5%)
-6%
-2%
-5%
(10%)
-9%
(15%)
-15%
(20%)
-19%
Total Ad Growth
Local Ad Growth
Source: The Federal Reserve of St. Louis and Wells Fargo Securities, LLC estimates
Real GDP
Nominal GDP
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The Economy: Haves v. Have Nots
 THE HAVES




NOMINAL GDP GROWING 3%-PLUS
RETAIL SALES REMAIN UP MSD
AUTO – NEW VEHICLE SALES UP BY ANOTHER ~1M, to 15.3M UNITS
INTEREST RATES
 THE KINDA HAVES
 HOUSING STARTS ARE EXPECTED TO APPROACH 1MM
 THE HAVE NOTS
 UNEMPLOYMENT IS EXPECTED TO REMAIN AT ~8% in 2013
Source: The Federal Reserve of St. Louis and Wells Fargo Securities, LLC estimates
14
The Economy: What To Watch For
 UNEMPLOYMENT – Was 9.6%, expected to be 7.6%
 HOUSING STARTS – Were 600k, expected to be 1MM
 RETAIL SALES – Were $3.8T, expected to be $4.5T
 CONSUMER SPENDING – Was $10.2T, expected to be $11.6T
 GAS PRICES – Was $2.83/gal, expected to be $3.66/gal
 AUTO SALES – Were 11.6MM, expected to be 15.3MM
 SMALL BUSINESS OPTIMISIM INDEX – Was 89, expected to be
90+
 INTEREST RATES – 30 Yr FRM was 5%, expected to be 3.5%
 REAL GDP – Was $13.0T, expected to be $13.8T
 NOMINAL GDP – Was $14.5T, expected to be $16.2T
Source: The Federal Reserve of St. Louis and Wells Fargo Securities, LLC estimates
15
The Economy: SBOI
 WHAT IS THE SBOI?
 The Small Business Optimism Index (SBOI) is based on ten survey
indicators that are seasonally adjusted, analyzed month-to-month and
set to an index of 100.
 WHAT ARE THE INDICATORS?










Plans to increase employment?
Plans to make capital outlays
Plans to increase inventories
Expects economy to improve
Expects real sales to be higher
Expects favorable credit conditions?
Current inventory?
Current earnings trends?
Current job openings?
Is now a good time to expand?
Source: The Federal Reserve of St. Louis and Wells Fargo Securities, LLC estimates
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The Economy: SBOI vs. Radio
15%
RADIO REVENUE CORRELATES WELL WITH THE SBOI
100
10%
95
0%
90
-5%
85
-10%
-15%
SBOI Index Value
Year over Year Change
5%
80
-20%
75
-25%
-30%
70
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013
SBO Index
Radio Advertising y/y growth
Source: The Federal Reserve of St. Louis and Wells Fargo Securities, LLC estimates
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The Economy: SBOI vs. Outdoor
15%
BUT OUTDOOR REVENUE CORRELATES EVEN BETTER
10%
100
95
90
SBOI Index Value
Year over Year Change
5%
0%
85
-5%
80
-10%
75
-15%
-20%
70
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013
SBO Index
Outdoor Advertising y/y growth
Source: The Federal Reserve of St. Louis and Wells Fargo Securities, LLC estimates
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Advertising: Recent Trends
LOCAL ADVERTISING HAS UNDERPERFORMED DUE TO PRINT (NEWSPAPERS/DIRECTORIES)
5%
5%
Year over Year Change
1%
3%
2%
0%
(0%)
0%
2008
(5%)
(10%)
2009
2010
2011
2012
(1%)
2013E
(2%)
(5%)
(9%)
(15%)
(15%)
(20%)
(19%)
Total Ad Growth
Source: OAAA, TVB, RAB and Wells Fargo Securities, LLC estimates
Local Ad Growth
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Advertising: Recent Trends
’13E AD REVENUE IS DOWN DUE TO TOUGH POLTICAL COMPS
Year over Year Change
5%
0%
2008
2009
2010
2011
2012
2013E
(5%)
(10%)
(15%)
(20%)
Total Ad Growth
Source: OAAA, TVB, RAB and Wells Fargo Securities, LLC estimates
Local Ad Growth
Real GDP
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Advertising: Impact of Balance Sheets
DEBT LEVELS HAVE BEEN CONTINUOUSLY RISING
9%
8%
Y/Y Growth in Debt
7%
6%
5%
4%
3%
2%
1%
0%
-1%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012
-2%
Source: The Federal Reserve of St. Louis and Wells Fargo Securities, LLC estimates
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The Stock Market: Historical Trends
1,600
30%
1,400
20%
1,200
10%
1,000
0%
800
(10%)
600
(20%)
400
(30%)
200
(40%)
0
(50%)
S&P 500
Source: FactSet and Wells Fargo Securities, LLC
Y/Y Growth
S&P 500 Level
THE STOCK MARKET HAS STEADILY IMPROVED SINCE ‘09 AND RECENTLY HIT RECORD LEVELS
S&P 500 Growth
22
The Stock Market: Media Trends
BOTH TRADITIONAL AND INTERNET STOCKS HAVE PERFORMED WELL AS OF LATE
175%
Y/Y Growth
125%
75%
25%
(25%)
(75%)
Traditional Stock Growth
Internet Stock Growth
*Traditional Media includes: Broadcast TV, Radio and Outdoor
Source: FactSet and Wells Fargo Securities, LLC
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The Stock Market: Television
THE TV INDUSTRY HAS BEEN ON FIRE
YTD Stock Performance
140%
120%

WHY?




MASSIVE INDUSTRY CONSOLIDATION
USE OF INEXPENSIVE DEBT
MULTIPLE EXPANSION
ADDITIONAL FREE CASH FLOW
100%
80%
60%
40%
20%
0%
TV 2013 Performance YTD
Source: FactSet and Wells Fargo Securities, LLC
S&P 500 2013 Performance YTD
The Stock Market: Out of Home
AND OUTDOOR HAS BEEN NO SLOUCH EITHER

 CBS HAS OUTPERFORMED BY 1,400BPS
 LAMR HAS OUTPERFORMED BY 900BPS
 CCO HAS BEEN IN-LINE
35%
YTD Stock Performance
IT IS ALL ABOUT THE REIT
30%
25%
20%
15%
10%
5%
0%
S&P 500 2013 Performance YTD
CBS 2013 Performance YTD
CCO2013 Performance YTD
LAMR 2013 Performance YTD
Source: FactSet and Wells Fargo Securities, LLC
The Stock Market: Valuation
35.0x
29.3x
EV/EBITDA Multiple
30.0x
25.0x
20.8x
20.0x
15.0x
10.0x
7.8x 7.7x
7.6x 7.8x
10.4x
8.4x
TV
Radio
Outdoor
6.5x 7.2x
5.0x
0.0x
'08/'09
Source: FactSet and Wells Fargo Securities, LLC estimates
'13E/'14E
Newspapers
Internet
The Stock Market: What Investors Care About
 Sustainability
 EBITDA margins and growth
 Expenses
 Fixed versus variable
 The REIT
 Peak to trough cyclicality
 Capital intensity
Source: Wells Fargo Securities, LLC
 Digital
 Penetration
 Cannibalization
 Competition
 Mobile
 Categories
 Real estate recovery?
Our Forecasts: The Economy and Advertising
2011A
4%
2%
9%
2012A
4%
2%
8%
2013E
3%
2%
8%
2014E
4%
2%
7%
1%
1%
(7%)
1%
10%
(7%)
(0%)
(6%)
(7%)
1%
8%
(6%)
Outdoor
4%
4%
4%
4%
Internet
23%
16%
14%
11%
2%
3%
(0%)
3%
Nominal GDP
Real GDP
Unemployment
Radio
Broadcast TV
Newspapers
Overall Advertising
Source: TVB, CAB, RAB, OAAA, NAA, MPA, and Wells Fargo Securities, LLC estimates
28
Questions?
Marci Ryvicker, CFA, CPA
Wells Fargo Securities, LLC
[email protected]
212-214-5010
29
Disclosures
Additional Information Available Upon Request
I certify that:
1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers
discussed; and
2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in
this research report.
Wells Fargo Securities, LLC maintains a market in the common stock of Lamar Advertising Company, Clear Channel Outdoor Holdings,
Inc., CBS Corporation.
Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for CBS Corporation within the past 12
months.
Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next
three months from CBS Corporation.
Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from CBS Corporation, Clear Channel
Outdoor Holdings, Inc. in the past 12 months.
Clear Channel Outdoor Holdings, Inc., CBS Corporation currently is, or during the 12-month period preceding the date of distribution of
the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to Clear
Channel Outdoor Holdings, Inc., CBS Corporation.
CBS Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of
Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided noninvestment banking securities-related services to CBS Corporation.
Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from CBS
Corporation in the past 12 months.
Wells Fargo Securities, LLC or its affiliates has a significant financial interest in CBS Corporation, Lamar Advertising Company.
Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next
three months from an affiliate of Lamar Advertising Company, Clear Channel Outdoor Holdings, Inc., CBS Corporation.
Wells Fargo Securities, LLC or its affiliates managed or co-managed a public offering of securities for an affiliate of CBS Corporation,
Clear Channel Outdoor Holdings, Inc., Lamar Advertising Company within the past 12 months.
Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from an affiliate of Lamar Advertising
Company, Clear Channel Outdoor Holdings, Inc., CBS Corporation in the past 12 months.
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Disclosures
CBS: Risks include a downturn in the economic/advertising environment and/or ratings weakness (radio and TV).
CCO: Risks include a high debt load which may become unmanageable during an economic slowdown, and a potential conflict of interest at CCU.
LAMR: Risks include a negative REIT outcome (i.e. IRS does not approve it), or significant deceleration in top line growth.
Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions.
Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which
includes, but is not limited to investment banking revenue.
STOCK RATING
1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY
2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD
3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL
SECTOR RATING
O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects significant
volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.
As of: 5/15/2013
48% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Outperform.
Wells Fargo Securities, LLC has provided investment banking services for 47% of its Equity Research Outperform-rated companies.
49% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Market Perform.
Wells Fargo Securities, LLC has provided investment banking services for 37% of its Equity Research Market Perform-rated companies.
3% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Underperform.
Wells Fargo Securities, LLC has provided investment banking services for 21% of its Equity Research Underperform-rated companies.
31
Disclosures
Important Information for Non-U.S. Recipients
EEA – The securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain categories of investors.
For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm
authorized and regulated by the Financial Services Authority. For the purposes of Section 21 of the UK Financial Services and Markets Act 2000 (“the Act”),
the content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in
Financial Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore
not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients.
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documentation provided to Australian recipients by Wells Fargo Securities, LLC in the course of providing the financial services will be prepared in
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credit ratings and assumptions, significance and limitations of the credit ratings stated on the respective rating agencies’ websites.
About Wells Fargo Securities, LLC
32
Disclosures
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Wells Fargo Securities, LLC.
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