In this segment from Market Foolery, Chris Hill and Simon Erickson look at the international growth of Discovery Communications' (NASDAQ:DISCA) various channels. It may not be the biggest media name in the U.S., where its viewership has declined slightly, but its global footprint -- especially in Europe -- and its digital streaming plans make it an intriguing player in the industry.
A full transcript follows the video.
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This podcast was recorded on Feb. 14, 2017.
Chris Hill: Let's start with fourth-quarter profits from Discovery Communications, which came in a little higher than expected. When you're looking at media companies, I think it's safe to say that the thesis for Discovery Communications, as much as anything, is this is a global play. If you live in the United States and you have cable, you're familiar with at least some of their networks -- Animal Planet, TLC, the Discovery Channel, that sort of thing. But when you look at the global footprint of where Discovery Communications operates, I think that's part of the thesis, isn't it?
Simon Erickson: Absolutely, it is. I think that's probably what investors are looking at for this company right now. Like you said, there's some definitely established channels here in the United States. We actually saw a slight decline in U.S. subscribers. So the real story here is that international growth. The one that really sticks out for me, Chris, it's actually in Europe of all places. Discovery Communications has Eurosport, which is kind of broadcasting live events. They have done Wimbledon. They've done Formula One. They've done a variety of other events. Typically not soccer, because that's expensive, but other live sports in Europe. And they've got the exclusive rights for the Winter Olympics of 2018, to broadcast nearly 740 million people across in Europe. Great, right?
Hill: Yeah.
Erickson: But the other thing that's really interesting to me is, there's various ways that you can reach people. They're going to, of course, do the free network TV. They're going to do some other paid TV events like that. But the thing that's interesting to me is the over-the-top offering, the digital streaming that they're going to be doing in the next few years. They're using BAMTech technology to create this. We know BAMTech because Disney is also working with them for live sports here in the U.S. Discovery is using them in Europe. They have the guy from DirecTV. They built out the NFL Sunday Ticket, incredibly successful here in this country.
Hill: I was going to say ... that's a nice thing to have on your resume.
Erickson: Yeah, the right guy on the right project. I think that more and more, you and I talk quite a bit about where the media industry is heading. It's not just that linear free TV anymore, but stuff you could watch at any time over computer and have it streamed directly to you for a certain price.
Hill: I want to go back to the first point you hit, which is declining subscribership in the U.S. Nice reminder that, for all of the headlines that Disney has gotten over the last 18 months about the falling subscribership of ESPN, this is a nice reminder that it's not just ESPN. When people are cutting the cord, it's also affecting companies like Discovery Communications.
Erickson: Absolutely. The subscriber number is only one piece of this puzzle. As that continues to evolve over time, you can't just look at that and that's the only thing that you're following as an investor, there's a lot of other things going on, too. And let's not forget currency, too. A lot of this is revenue that's generated overseas. When you translate that back to a strong dollar in U.S. dollar, it doesn't look, sometimes, as strong as it really is out there.
Hill: Where is this stock in terms of its valuation? This is a good quarter, but I think the declining cable subscriber number might be a little bit of why we're seeing the stock fall 2.5% today. That's not a big drop, and this is a stock that was trading near a 52-week high. But it's really been in the $20's for a year now, and I'm just wondering if it's pricey, if that has anything to do with the drop today, or if it's really all just about the cable subscribers?
Erickson: Well, I mean, a $13 billion valuation for a media company -- that's a smaller media company than the juggernauts -- but obviously larger than a smaller regional one would be or anything like that. So, I still think it has room to run, Chris. I think a lot of that over-the-top and digital streaming stuff really isn't priced into the stock at this point, but we still need to continue to see them gain traction on that, especially with that Eurosport in Europe.
