Media Stocks Continue Freefall as Stock Market Sinks 600 Points in a Week

Dow Jones down 350 points in early Friday afternoon trading, media stocks continue to sink; “I don’t think this is going to turn into a meltdown of catastrophic proportions,” analyst Alan Wolk tells TheWrap

Last Updated: August 21, 2015 @ 1:08 PM

Wall Street traders were in a frenzy on Friday as the stock market was down 350 points in early afternoon trading.

The market traded about 1.5 percent lower on Friday after ending Thursday down triple digits at over 350 points. The stock tumble came as investors’ concern grew in response to China’s economic situation and its effects on the global economy.

Along with the rest of the market, media stocks tumbled for the second time in two weeks on Thursday and Apple dropped nearly 4 percent on Friday.

As TheWrap reported, Time Warner dropped 5 percent to $73.90; Viacom fell 6.3 percent to $40.42; Disney, sunk six percent to $100.02 after lowering its cable profit outlook earlier in August.

Alan Wolk, senior analyst at Diffusion Group, cautioned against tying the media plunge to the overall market tumble.

“While many media companies (especially movie studios) make lots of money in China, there’s no direct correlation, the Chinese market is not that critical to their business,” he told TheWrap. “We are seeing an overall adjustment in the market and a specific adjustment in terms of media stocks, which I think have largely been overvalued.”

Cowen and Co.’s Doug Creutz also lowered his estimates for CBS, Disney, Discovery, Fox, Scripps Networks, and Viacom on Thursday, dubbing the companies’ shares as “not dead, but in purgatory.” He noted that big media stocks had lost $70 billion in market valuation in the past two weeks.

CNBC’s Jim Cramer pointed to Disney as the main culprit of the stock market downfall: “You can say that Aug. 4 was the day the growth music died, at least for now,” he said on “Mad Money” Thursday. Commenting on the company’s conference call that hinted at lower profit projections, Cramer said Disney’s backward slide affected other media companies.

“Ever since that conference call, the only cartoon character I can think about when Disney pops into my mind is Humpty Dumpty, because it seems that all the Street’s horses and all the Street’s men can’t put Humpty Dumpty back together again,” he concluded.

Apple, Facebook, Netflix and Google took hits on Thursday. Twitter, which has had a rocky few months on Wall Street, dropped over 6 percent, trading below its IPO price of $26 for the first time in its history. TWTR saw a low of $25.92 in the day to end at $26.

Wolk says the media business has reached a saturation point, so it’s only natural for stocks to fall backward: “There’s a saturation point in the market — we can’t watch much more TV, spend much more time on apps, etc. And so that pie is getting cut into smaller pieces as new competitors come on the scene and steal small pieces of the market. User’s time is finite and every gain has to come with a loss somewhere.”

The media stocks’ downward spiral came on the heels of Bernstein analyst Todd Juenger released a report hinting at rough times ahead for top TV companies. He cautioned companies to forget the old media business rules.

“Where the stocks/sector have traded historically is irrelevant,” he wrote. “The world has changed too much…all of these comparisons have declining subscriber fees and/or advertising displacement,” Juenger said. “Some have hopeful digital futures, but futures which look very different — and less sizable and profitable —  than the analog past.”

His report also downgraded Time Warner to Market perform while touting 21st Century Fox as the media stock with the best upward trajectory.