We upgrade our recommendation on Scripps Networks Interactive Inc. (SNI) to Outperform following its impressive third quarter financial results of fiscal 2010, well above the Zacks Consensus Estimate.
This was primarily attributable to significant growth in advertising and affiliate-fee revenue at the company’s flagship Lifestyle Media business and higher total segment profit. Importantly, the struggling online shopping business sites of the company also generated year-over-year growth.
The fabulous performance of Scripps Networks in the first nine months of 2010 was mainly attributable to double-digit growth in advertising and affiliate-fee revenue at the company’s flagship Lifestyle Media business and higher total segment profit. An improving global economic condition resulted in significant advertising revenue growth for many cable MSOs and media companies from the beginning of 2010.
Scripps Networks’ advertising revenue climbed 33.7% year-over-year in the third quarter of 2010. We believe this trend will continue in the near-future. Recently the company entered into a new distribution agreement with AT&T (T) for its lifestyle networks which will be viewed by 2.7 million U-verse network subscribers of AT&T.
Management’s initiatives to develop a long-term profitable business structure for its struggling Interactive Services segment have finally paid off. In the third quarter of 2010, Scripps Networks’ online shopping sites e.g., Shopzilla, BizRate, Beso and Tada.com generated year-over-year growth in revenue and operating profit.
Acquisition of the controlling stake in the Travel Channel has lifted Scripps Networks as the global market leader in lifestyle programming. The company now has three very powerful and completely distinct programming categories namely, home, food, and travel.
In the U.S., Travel Channel is among the top 10 cable networks in terms of primetime ratings growth that can be incorporated into other platforms like Internet, mobile, and social media applications.
Travel Channel is a high-margin business. Management is expecting that Travel Channel may generate $200 million in revenues in fiscal 2010 and will also improve the overall margin of Scripps Networks.