NEW BEARISH Plays
Discovery Communications - DISCA - close: 31.21 change: -0.43
Stop Loss: 32.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 13, 2015
Time Frame: Exit PRIOR to earnings on Feb. 19th
Average Daily Volume = 3.8 million
New Positions: Yes, see below
Why We Like It:
We have heard for a long time that content is king. Discovery has some great content. So why is the stock suffering so poorly? The stock market posted double-digit gains last year and yet shares of DISCA was one of the market's worst performers with a -23.8% decline.
According to company marketing materials, "Discovery Communications (Nasdaq: DISCA, DISCB, DISCK) is the world's #1 pay-TV programmer reaching nearly 3 billion cumulative subscribers in more than 220 countries and territories. Discovery is dedicated to satisfying curiosity, engaging and entertaining viewers with high-quality content on worldwide television networks, led by Discovery Channel, TLC, Animal Planet, Investigation Discovery and Science, as well as U.S. joint venture network OWN: Oprah Winfrey Network. Discovery also controls Eurosport International, a premier sports entertainment group, including six pay-TV network brands across Europe and Asia. Discovery also is a leading provider of educational products and services to schools, including an award-winning series of K-12 digital textbooks, through Discovery Education, and a digital leader with a diversified online portfolio, including Discovery Digital Networks."
It looks like the revenue picture has soured for DISCA. Back in February 2014 the company reported earnings and raised their revenue guidance. One quarter later, when they reported in July, they lowered the top end of their guidance. Then in November, when they reported earnings, DISCA missed Wall Street's revenue estimate and management lowered their revenue guidance.
In a recent interview Discovery's CEO said they are having trouble monetizing all of their content. The advertising environment has gone soft and they haven't figured out why there is a lull in ad spending.
Research is forecasting that online video watching will more than double by 2020. A USB analyst believes online will eventually pose a significant threat to more traditional TV watching trends and companies.
Another analyst, this time with Sanford Bernstein, believes the huge declines in TV viewership will continue. Analyst Todd Juenger said, "We believe ad-supported TV is in the early stages of a structural decline." That's long-term bearish for TV. DISCA needs to do a better job of monetizing their content online.
Technically DISCA looks very bearish. The oversold bounce from November stalled in the $36 area several time. The point & figure chart is bearish and forecasting at $23.00 price target. Today DISCA is breaking down to new 52-week lows.
We are suggesting a trigger to open bearish positions at $30.90.
Plan on exiting ahead of DISCA's earnings report in mid February.
Trigger @ $30.90
- Suggested Positions -
Short DISCA stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the FEB $30 PUT (DISCA150220P30) current ask $0.90
Option Format: symbol-year-month-day-call-strike