One sign a recession is not coming: Strong advertising

It looks like the beating media stocks took last week may have been unfair.

Despite plenty of positive signs — Disney beat across the board, Time Warner raised guidance, CBS said it sees the ad business booming over the next two quarters — big media stocks were pummeled last week amid an overall market downturn.

But Tuesday, many media shares were outperforming the market: CBS up almost 4 percent, Fox was up 3.8 percent, and Viacom was rebounding from last week's losses, up 6.5 percent. While stocks were dragged down by concerns about the weakening TV bundle hurting subscriber fees, those fears may now be lessened as investors realize that there's plenty of good news in the ad market.

Les Moonves, president and chief executive officer of CBS Corp.
Adam Jeffery | CNBC
Les Moonves, president and chief executive officer of CBS Corp.

Last week on CBS' earnings call CEO Les Moonves raved that the advertising business is strong, and what's more looks like it will continue to be over the next two quarters.

And there are no signs of economic weakness. "Back in 2008, we saw it coming. It was there in bright shining lights," Moonves said in CBS' fourth quarter earnings call Thursday afternoon.

"We're not seeing anything remotely resembling that now. And we have visibility through Q2 in terms of our advertising, which is sort of normal, if not even more aggressive than normal. So that's why I'm so optimistic about the upfront [ad sales period in May]," he said.

And in a new report, Pivotal Research Group's Brian Wieser finds that the national TV ad market rose as much as 7 percent in the fourth quarter of last year, and as much as 2 to 3 percent for the full 2015. That may not sound like a lot, but it contradicts predictions that the explosion of streaming video options, and the lower TV ratings they've brought, would lead to a dramatic decline in the TV ad market.

Wieser predicts that national TV will fare at least as well in 2016 as it did last year.

"We believe this is because for advertisers, ad budget decisions focus on least-bad alternatives," said Wieser. But he cautions that 2016 won't see "easy growth," warning that "investors shouldn't expect that national TV can do much better than the total market in advertising."

Wieser isn't the only media analyst to see an opportunity right now. Morgan Stanley's Ben Swinburne calls the U.S. ad market "surprisingly strong." And Credit Suisse issued a report Friday with an "outperform" rating on Disney and a $130 price target for the stock. Analyst Omar Sheikh said that while the rate of domestic subscriber declines is improving, the advertising story is surprisingly strong. "Advertising grew an underlying 14 percent in the quarter, scatter pricing remains very strong, and the outlook for the upfronts has improved significantly," he said.

On Disney's earnings call last week, there was a similarly upbeat tone about the ad market: CEO Bob Iger said ESPN's advertising growth over the last six years is "three times the growth of television advertising." And in an interview ahead of that earnings call, Iger shared a positive outlook, saying in terms of the domestic consumer "we feel great about that business and great about the environment."