The only constant in the world is change. It's an overused phrase, certainly, but like most cliches, it has some truth to it. Yet as investors (and humans) we tend to try to predict the future by looking into the past, often missing big changes until it's too late. For example, 20 years ago how many people would have predicted the power of the Internet or the popularity of hybrid cars?
I suspect even fewer people would believe that a Spanish-language television station could challenge the big four networks, in primetime, for the coveted 18-34 demographic. Yet that's exactly what Univision (NYSE:UVN) has done during the 2004-2005 season. On two out of every three nights this season, Univision was one of the top four in that demographic, beating at least one of the traditional networks: Disney's (NYSE:DIS) ABC, Viacom's (NYSE:VIA) CBS, General Electric's (NYSE:GE) NBC, and FOX (NYSE:FOX). And on 19 occasions, Univision beat them all.
Think about that for a moment. At some point last year, Univision captured more young adult eyeballs than some of the most popular (and expensive) shows, such as 24 and Lost. Univision, with the top two Spanish-language stations, is so far ahead of other Spanish broadcasters that it's unfair to even consider them in competition. Univision's going after the big boys -- and doing a fine job of it.
Content is king in television, and it's crucial to Univision's long-term growth. Despite a recent spat with Televisa (NYSE:TV), which owns a healthy stake in Univision and produces most of the broadcaster's top-rated shows, content looks to be sufficiently locked up. The agreement with Televisa, which Univision President Ray Rodriguez claims was never in jeopardy, runs through 2017, and agreements with other providers run through 2016. Plus, Univision has exclusive Spanish-language broadcast rights to the 2006 FIFA World Cup.
Obviously, part of Univision's growth is simple mathematics. For every Spanish-language station, there's, oh, a couple hundred in English. There are so many specialized English-language channels now that there's less interest in the networks. On the other hand, the selection of Spanish channels in the U.S. is more limited, resulting in consolidated viewership.
Univision's stock isn't cheap by any means, despite being about 33% off last year's highs, and at a P/E of 35, it appears fundamentally overvalued. Yet the underlying growth trend is undeniable: Univision is capturing the majority of viewers in the fastest-growing demographic in the U.S. This growth, combined with room to raise advertising rates (still far below those of the traditional networks), makes for a compelling story.
Fool contributor Chris Mallon owns shares of Univision.
