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Published: February 3, 2012 at 03:04 PM GMT
Last Updated: February 3, 2012 at 03:04 PM GMT
With earnings season in full bloom, the markets seem as unsure as the European Central Bank these days. This week saw both huge adulation (Apple keeps on killing it) and big disappointment (Google's earnings miss) for media investors.
Just when investors think the Apple (AAPL) party can't continue any longer, the consumer electronics company keeps the music going. With just blow out earnings, the stock ripped up 8% after hours Tuesday, only to give back much of those gains as the week wore on.
This was the first quarterly earnings report since Steve Jobs passed away and Apple certainly didn't disappoint -- with record sales and earnings. The firm earned $13 billion on sales of $46.3 billion, an increase of 73%. Earnings per share of $13.87 easily eclipsed expectations of $10.08. The numbers were hard to wrap one's mind around: 37 million iPhones sold, 15.4 million iPads, 5.2 million Macs, and 15.4 million iPods.
The same jubilation was hard to find when Google (GOOG) announced its quarterly performance. Its shares were down about 8% after a rare miss from the search engine-cum-media firm. Google reported Q4 earnings of $9.50 while the Street's average analyst expectation was $10.49, according to the Wall Street Journal. Results were hurt by Europe's ongoing economic problems and margins were compressed as mobile ad sales took a larger cut of Google's business.
Regardless of the miss, many analysts were positive on Google's report. "Despite the slowdown in search, we remind investors that paid click volume is showing its fastest acceleration in years, display and mobile traction growth is continuing," Evercore Partners analyst Ken Sena wrote to investors. In fact, paid click volume was up 34%, a source of optimism for multiple analysts.
Few analysts seemed as moved by Yahoo's (YHOO) earnings release. And the numbers were a mixed bag. Display came in disappointing but search and margins made up somewhat for it. Yahoo's display advertising accounted for $546M, below Barclays Capital's Anthony DiClemente's estimate of $569M. He reduced his firm's target on the Internet media company to $18 from $19.
CSFB's Spencer Wang decided to take what he called a "wait and see" approach on YHOO. He lowered 2012 EPS estimates on the company from $1.04 to $0.99 "to reflect a 5% reduction in net revenues given macro-uncertainty and the potential for market share pressure and lower margins owing to dilution from the Interclick acquisition and possible reinvestment spending." But, Needham's Laura Martin is incrementally more positive on the name after Jerry Yang's resignation last week, as she thinks there's a greater chance Yahoo successfully sells its Asian assets with after the ouster of its founder.
It was all fun and games this week for social gaming firm and recent IPO, Zynga (ZNGA). It received two positive initiation reports on its stock this week. JPM's Doug Anmuth thinks there's a lot of room to run as he placed a $12 target on the stock. In a note sent to investors this week, the analyst wrote, "…we believe the company deserves a premium to traditional game publishers based on its higher growth and margins, broad appeal, and lower risk business model." Mark May, an analyst at Barclays, sees several competitive advantages for the firm credited with creating social gaming: 1) large installed user base, 2) top technology talent, and 3) established game franchises. He's got an $11 PT on ZNGA.
DVD and movie streaming company, Netflix (NFLX) continues to confound investors. It was up 22% on Thursday (60% over the last 30 days) after a surprisingly upbeat earnings report. Results were good enough to get JPM's Bo Nam to jack up his target price from $67 to $95. The media analyst cited upside in streaming and its positive effect on margins for the company's positive performance. NFLX's 4Q performance of 21.7 million streaming subscribers prompted numerous analysts to readjust their future estimates. CSFB's John Blackledge moved his estimates upward in a note to investors. "We believe the competitive positioning is strong and will look for further inflection points in sub growth and int'l profit progress as catalysts over the next 12 months," he wrote in a note, raising his PT to $125 from $100.
Janney's Tony Wible still isn't impressed. A vocal bear on NFLX, he believes that the DVD business, while accounting for most of the profits, is significantly overvalued. He's also not convinced that the company can scale its low margin streaming business. He's got a sell rating on the stock.
Speaking of Wible, he was busy this week putting together estimates on ad spend. "Overall, ad spend across all media will grow by 6.7% in 2012 to $169.5 billion, fueled in part by election campaigns and the emerging mobile ad market," he wrote in a note sent to investors. He also penned a piece on what's going on with SOPA and PIPA legislation that we wrote about in last week's Wall Street Report. The media analyst is surprised by the backlash of the Internet services companies who would bear the brunt of cost/accountability for new anti-piracy measures. Moreover, he believes there are bigger ramifications of this process. "The fierce reaction to SOPA/PIPA and shift in political support lead us to be more wary about usage-based billing (UBB), which has the potential to cause more of an uproar, as Internet consumers clearly have a sense of entitlement and may spin UBB as a form of discrimination," he wrote in a missive to investors this week.
Investors cheered Time Warner Cable's (TWC) performance, sending the stock up almost 8% on Thursday. Stefan Anninger at CSFB applauded the cable provider's numbers and stuck with his Outperform rating. He especially liked the fact that the financial ($4.98 billion in revenues) and subscriber numbers (+51k) were both better than his team expected. The firm repurchased almost $400 million in shares in the 4Q and authorized an additional $4 billion in new share repurchases for 2012. Needhan's Laura Martin was impressed by the 17% dividend increase. She has a $95 price target on the stock.
AT&T (T) found that selling iPhones at a loss isn't a great model to boost earnings. It dialed back its earnings growth estimates (from double digits to single) for 2012, sending the stock down over 2% on Thursday. The telecom company was hit doubly hard this quarter as Apple opened up its carrier relationships for the iPhone and from the failed attempt at purchasing T-Mobile. Its U-Verse unit, which competes with cable and satellite, reported mixed subscriber momentum (up on quarter, down from a year ago). It added 208,000 net subs in its last quarter.
Employees at leading online job search firm Monster Worldwide (MWW) may soon be looking for jobs, or at least new investors. The stock tanked over 20% on Thursday after it announced its Q4 results of $.11 in EPS. Investors were looking for $.12. MWW took down its estimates on Q1 revenues as well — it believes sales will drop 3-7% year over year. Concurrent with its earnings report, the company also announced it would be laying off 7% of its staff. CSFB's Ashton Ngwena was comforted somewhat by the $42 million in share repurchases in 4Q11, as part of a $250 million share buyback. "We feel with the re-set of expectations, the top-line is achievable and are confident in MWW's ability to reset the cost base," the analyst said in a research note to investors. The firm maintained its Outperform rating but severely undercut its price target, slashing it to $10 from $16.
JPMorgan published a piece this week with its best near-term equity calls. In media/telecom, the investment bank recommends Belo Corp (BLC), Amazon.com (AMZN), and MetroPCS (PCS). The firm cites Belo as a well-run local TV station operator with a good mix of affiliates going into 2012 that when combined with some refinancing and an intent to payout more to shareholders, appears primed for a good year. Analysts see Amazon as a good long-term story with some near-term catalysts up ahead as margins may be bottoming. Churn was way down for PCS and led to its surprising pre-announcement. JPM analysts believe this good momentum of good net additions of subs and lower churn will play out further this coming year.
JPM's media team also hosted its annual Advertising/Marketing Virtual Summit this week. The firm is seeing resiliency for the most part in advertising going into 2012. Participants in the meeting see a strengthening ad market despite the cloudy macroeconomic backdrop. JPM is leaving its industry estimate intact and expects "good gains in Internet (+16%), Cable (+5-6%), and Outdoor (+4%), with Magazines and Newspapers lagging. We expect Local TV +2-3% (ex Political) and Radio +2%." The analysts also expect social and new technologies to be a major focus this year — though revenue growth is rapid, any ancillary sales from this part of digital still contributes just a small minority of revenues.
Markets were mixed this week with bright spots like Apple's blowout earnings and poor marks for Google's miss.
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