Active Week for Media on Wall St. - 01-13

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CES stole the spotlight this week as much of Wall Street was in attendance, analyzing trends and business drivers of the media industry for 2012. Last week I wrote about Wall Street's revised projections for the media industry (growing more risk-averse). Next week, in my Jack Myers Media Business Report (subscribers-only) I'll drill down on the major takeaways from the Consumer Electronics Show held in Las Vegas. Coinciding with CES, Wall Street spent this week making their top media picks and highlighting trends for 2012. Here's what went down:

JPMorgan's Doug Anmuth named Amazon (AMZN) and Priceline (PCLN) as the firm's top two Internet names. He's got a $250 price target on AMZN as he sees it as "the best long-term growth story in the Internet space." While much has been made of the giant retailer's eroding margins, Anmuth thinks negativity is overshadowing the potential for the Kindle family of tablets/e-readers. Priceline is primed for continued growth with its Booking.com property, which is stealing share of the European hotel industry. He's got a $682 price target on that stock.

Within the Internet sector, JPM highlighted some media trends that should drive stocks in 2012. Display will drive Internet advertising, driving a 16% expansion in ad spending allocated to online channels. Platform wars (Amazon vs. Apple vs. Google) are increasingly shifting to hardware. Google's (GOOG) expected tablet entry will increase focus on distribution of online content and services, as firms focus on monetizing the device over the lifetime of the hardware. For 2012, researchers expect mobile payments to be tied increasingly to coupons, increased competition in voice search, and consolidation of the daily deals categories, dominated by Groupon (GRPN).

Janney's Tony Wible also published his own view of media trends in 2012. He sees consumers increasingly connected to devices (hardware is expected to grow by over 2 billion units). Expect the formation of what he calls "3-screen ecosystems", adoption of Smart TV, and the rise of digital wallets to drive new venues for commerce and advertising. This connectedness should mean consumers spend more time finding and consuming media as content remains king. Wible expects this demand to both increase ad inventory and drive up CPMs in 2012.

While new media competitors are running on all cylinders, older media stalwarts seem to be sputtering a bit. Barclays Capital took its estimates down for Viacom (VIAB) this week. Analyst Anthony DiClemente sees ratings sagging at Nickelodeon, the media conglomerate's kids programming network. While estimates are dropping, the analyst still wrote to investors, "Despite the recent ratings challenges, we believe VIAB still has the most impressive return of capital plan in the group. We are modeling $700M of share repurchases in the F1Q and $2.8B for FY12, or 10% of the current market cap — the largest percentage in the group."

Barclays analysts were busy this week, lowering estimates on another media player, Dreamworks Animation SKG (DWA). DiClemente is already underweight on the animation firm and he doesn't like recent DVD sales for films it produced like Kung Fu Panda 2. Citing poor ticket sales, anemic DVD distribution, and increasing competition in CGI movies, he slashed his 2012 EPS estimates from $1.36 to $1.03.

WebMD (WBMD) was down over 30% this week, as the company unsuccessfully ended a process to sell itself. The company announced some recent management changes, lowered its guidance, expects lower earnings, and some pushback on its patent portfolio in 2012. Nevertheless, some banks are sticking with the stock, including Barclays which didn't change its rating (Equal Weight) after the plunge. "Despite the sell-off today, we are not changing our rating and would not chase the stock. We believe fundamentals could remain choppy for some time given the patent expiration headwinds through CY13+. While an activist like Icahn could emerge, we estimate the probability of this outcome is challenging. And, the recent unsuccessful sale process does not add confidence to the company's options," the firm told investors.

If consumers aren't spending at the box office, it doesn't appear they're spending on video-game content, either. Research firm NPD Group found spending on games dropped by 8% in 2011, hovering at about $17 billion. "In December, hardware and accessories sales dropped 28 percent and 27 percent, respectively. Total software sales were down 15 percent," the firm found. As game consoles are nearing the end of this life-cycle and more gamers are playing online, firms like Activision Blizzard (ATVI) and Electronic Arts (EA) must continue to develop blockbuster online games.

Users are playing games online and they must be multitasking, too; listening to music as they play. Online radio pioneer, Pandora (P ) has seen its shares rise over 25% so far this year and just announced it exceeded 125 million users of its Internet radio service (up from 80 million less than a year ago). Investors don't seem to be worried of competitor Spotify's continued success in the U.S.

And it's not just radio — consumers are consuming a lot more video content online, as well. Hulu's results impress. The company announced 2011 revenue of more than $400 million and over 1.5 million subs. The joint venture of News Corp, Walt Disney, NBCUniversal, and Providence Equity Partners grew its content by over 40% this year and expects to spend almost $500 million on content acquisition in 2012. Hulu's CEO bragged, "We are attracting more than twice the number of subscribers each day when compared to this time last year…we expect our subscription services to account for more than half of Hulu's overall business later this year."

Hulu's just one quiver in Disney's (DIS) investment thesis. The stock is up more than 25% over the past 3 months, compared to 11% for the S&P 500. Barclays is positive on the stock, but its recent share rise has prompted the firm to downgrade the stock. "Given this recent upward move, a plateau in positive EPS revisions, and a deceleration in growth, we believe risk/ reward in DIS shares is less attractive, and as such, we are downgrading shares to 2-Equal Weight. Soft TV ratings trends at ESPN/ABC, moderated future growth at the Parks, and an uncertain forward year film slate contribute to our hesitation at these levels," analyst Bo Tang wrote in a note to investors this week.

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