NEW YORK (Reuters) - Forget Facebook. Billboards may be the way to go.
While shares of Facebook have plummeted more than 25 percent since its IPO earlier this month, some investors are focusing instead on decidedly old-fashioned media options like local television stations, movie theaters and billboards.
And for good reasons. Analysts say old media offer proven ways to reach audiences, whereas online advertising hasn’t seemed to fulfill its potential yet.
“We’re hearing more talk questioning how effective some of the new media advertising really is, especially when a lot of user functions are now done wirelessly on hand-held devices,” said Eric Marshall, a portfolio manager with Hodges Funds in Dallas. “If people are reading on iPads, are they still seeing the advertising the same way as in print? It’s hard to measure.”
These concerns come at the same time that spending on online advertising in the U.S. is expected to top print advertising for the first time. It’s no secret that newspapers have lost their near-monopolies on local audiences and advertising, thanks to competitors like Craigslist, Google and online aggregators that offer news for free.
According to eMarketer, companies are expected to spend $39.5 billion on online ads this year, compared with $33.8 billion for ads in newspapers and magazines. Online spending reached $32 billion in 2011, compared with $36 billion for print, according to the company.
Despite those advertising dollars flowing to online, investors like Marshall point to moves like General Motor’s recent decision to pull $10 million in ads from Facebook. GM judged those ads to be ineffective, and Marshall expects the company to spend those ad dollars instead on local media advertising.
That is one of the reasons he has been buying shares of Belo Corp, which owns 20 television stations that are network affiliates in markets like Dallas/Fort Worth, Houston, Seattle and Phoenix. All together, the company claims to reach 14 percent of U.S. households with televisions.
Belo is down 7 percent since the start of the year through Tuesday’s close and trades at a price to earnings valuation of 8, well below the 14 P/E ratio of the broad Standard & Poor’s 500 index. It offers a dividend yield of 5.4 percent.
Short-term, Marshall expects to see advertising rates increase for the 2012 Summer Olympics and election-year spending through November. He’s especially optimistic about the next two years because he expects automobile advertising to increase.
“You’re going to see the Japanese auto companies start to spend aggressively to get back the market share they lost to European and American automakers after last year’s tsunami. GM and Ford will respond and do everything they can to defend their share,” he said.
Spending by automakers and other local advertisers also could lift the revenue of companies like CBS Corp and the New York Times Co, which Hodges thinks will expand its focus on being a national newspaper - and tap a national advertising market - as local papers continue to struggle.
CBS may be in a stronger position than other traditional media companies, analysts said. The company has a lucrative mix of local television and radio stations in election battleground states, according to Marci Ryvicker, an analyst at Wells Fargo.
And the company’s e-book division, which includes titles from its Simon & Schuster publishing house, may hold promise, according to a report by Trefis, a research firm based in Boston.
Revenue from e-books grew by 64 percent at CBS in the first quarter and now constitutes 26 percent of total publishing sales, Trefis noted, which constitutes “a growing segment and thus the opportunity to gain market share if the company can offer lucrative royalties to authors and come up with innovative e-book designs.”
Dan Miller, portfolio manager of the $9.4 million Gabelli Focus Five fund (GWSIX), is investing in shares of Clear Channel Outdoor Holdings. The company sells ad space on displays ranging from billboards to bus stops to mall kiosks. Miller says the company’s revenue will grow at more than 5 percent a year as it builds more digital billboards, which offer higher quality ads than do traditional billboards.
“We think that this is a very attractive business at a very attractive price,” he said.
The company shares closed at $6.45 Tuesday, and are down 48 percent this year to date in part because of a lawsuit that alleges the company shifted cash to its parent, Clear Channel Communications, which still owns more than 85 percent of the company. Miller said that he believes the lawsuit could push Clear Channel Communications to decide to buy the remaining shares of the outdoor company.
Miller is also adding to his position in RealD Inc, a company that licenses devices to allow movie theaters to show movies in 3-D. As of 2011, the company’s technology system was found on approximately 15,000 theater screens in 61 countries according to Thomson Reuters data.
Miller said its business model, which involves signing five to 10-year contracts with theaters, has the potential to become more lucrative as 3-D movies become more popular. The theaters give RealD a percentage of ticket revenue.
Others see value in movie theaters themselves. James Goss, an analyst at Barrington Research, recently raised his target price by $2 to $30 for Cinemark Holdings after the company beat estimates in its last quarter.
In a note to clients, Goss wrote that Cinemark was outperforming its peers with its domestic box office up 24.8 percent, in line with industry-wide figures. Revenue from admissions and concessions was up about 20 percent, he noted.
Cinemark shares are up 26.7 percent this year through Tuesday and trade at a P/E of 18.2. They offer a dividend yield of 3.6 percent.
Reporting By David Randall; Editing by Jennifer Merritt, Walden Siew and Steve Orlofsky