Will the Olympics Move this Media Stock?

As long-term investors, we’re taught to always be mindful of the big picture.
We’re constantly reminded not to get caught up in the day-to-day fluctuations of the market, not to listen to the talking heads on CNBC who will say anything to keep the 24/7 news cycle churning, not to panic when one of our stocks get beaten down by bad earnings or bad press.
And we certainly aren’t supposed to invest in something based on one event.
Apple (Nasdaq: AAPL) investors have learned that the hard way over the past 18 months. In the past, Apple’s top-secret product announcements unveiling the latest iPhone or iPad automatically resulted in a 10% – 13% spike in its share price in the weeks that followed.
That doesn’t happen anymore. Wall Street finally grew bored with the world’s largest company simply churning out the latest versions of its signature products. Now, Apple product announcements barely move the needle for AAPL shares. Any future appreciation in Apple’s share price will come from sustained earnings growth and new innovations, not much-hyped one-time events.
Similarly, it would be silly for someone to invest in a company based on a sporting event. Or would it?
Sports have become big business in this country. The average cost to run a 30-second ad during this month’s Super Bowl was a whopping $4 billion. Olympics ads are much cheaper. After all, the Olympics last 17 days; the Super Bowl is a one-day mega-event. However, those 17 days of Olympics add up. Olympic ads will cost the companies that paid for them approximately $1 billion this year.
And it’s obvious where all those billions of Super Bowl and Olympic dollars go: to the networks that air them. NBC is airing its fourth consecutive Winter Olympics (it also airs the Summer Olympics). Each of those four years, advertising revenue has exceeded $750 billion. The company has turned a sizable profit in three of those four years – breaking even in the 2010 Vancouver Games.
When a network airs a sporting event that millions of people are watching, investors routinely snatch up shares of the company that owns the network.
Since Fox aired the Super Bowl on Feb. 2, shares of News Corp (Nasdaq: NWSA) – the company that owns Fox – have risen 4.5%. It wasn’t the first time a company has reaped a short-term benefit from airing the Super Bowl.
CBS (NYSE: CBS) shares rose 5% in a month after airing last year’s big game. Comcast (Nasdaq: CMCSA), which owns NBC, saw an 8% spike in its share price in the month following the 2012 game on NBC between the New York Giants and New England Patriots. The 2010 Super Bowl gave CBS an 11% boost in a month.
The Olympics have had a similar effect. Comcast shares jumped 5.5% in the month after NBC aired the 2012 Summer Olympics. Perhaps we can expect another big push in Comcast shares in the weeks ahead.
Clearly, big-time sporting events – and this summer’s World Cup will be another one – have a profound short-term impact on a company’s shares. What these events mean in the longer term is more difficult to quantify. But there are less tangible, positive impacts to having the Olympics, Super Bowl or World Cup air on your network.
For one, you can’t beat the exposure. Having hundreds of millions of viewers tuning into your channel – or channels – either all in one day or over the course of a few weeks gives networks numerous opportunities to pump up their own shows. That tends to have a snowball effect on viewership.
Also, networks able to win the bidding rights to show major sporting events are essentially telling the public – investors included – that they are flush with cash. That’s also good for business.
No, the Olympics won’t make or break Comcast in the long term. Nor will the Super Bowl make or break News Corp  or CBS.
But the companies that host the events are making loud statements to their audience on a very public stage. At the very least, they’re projecting an image of success.
And on Wall Street, image is everything.

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