) recently reported its Q3 2010 earnings. Based on improvements
observed in profit margins and advertising revenues, we have
our price estimate for CBS's stock to $18.08.
CBS traditionally competes with media conglomerates like Disney (
), News Corp (
) and Time Warner (
) in the broadcasting and cable networks businesses.
While the company is doing well on most fronts, its publishing
division Simon & Schuster continues to see softening sales. The
have declined from close to $900 million in 2007 to close to $800
million in 2009, and are further expected to decline in 2010. In
our forecast, we estimate that Simon & Schuster and CNet
together account for around 8% of our stock price estimate.
The bright side is that the growth in digital publishing is
offsetting the decline in traditional publishing and could well
drive revenue growth in the near future given the increased
adoption of e-books and greater use of tablets as e-reading
Digital Publishing is Still Small
The company stated in its recent earnings that e-books now
constitute around 7% of its total publishing revenue and will
continue to be a growing part of the revenue base. This amounts to
a little over $15 million in revenues compared to close to $218
million for the total publishing business in Q3 2010.
Given its relatively smaller size, digital publishing (in the
form of e-books) has not been able to completely offset the decline
in revenues from traditional publishing. However we expect this
could change, and we expect to see the publishing division revenues
could rebound in 2011 driven by increased amount of digitally
published content and an improving economy.
Growing e-book Market
According to Forrester Research, the e-book market in the US is
expected to hit close to $966 million in 2010. This amounts to
close to 100 million e-books sold assuming an average price of $10
per e-book. Furthermore, Forrester predicts that this market will
nearly triple itself by 2015, amounting to close to $3 billion.
Apart from dedicated e-readers, growing use of tablets like Apple's
iPad are also driving sales of e-books. Longer term, we believe
this presents an opportunity for publishers like CBS (Simon &
Schuster) to recoup its declining publishing revenues.
You can see
the complete $18.08 Trefis price estimate for
CBS' stock here.