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Published: August 10, 2012 at 09:43 AM GMT
Last Updated: August 10, 2012 at 09:43 AM GMT
After last week's thorough thrashing of some popular media stocks (ahem, Facebook and Zynga), investors also had to deal with some fat-fingered trading on Wednesday. Some irregular moves in stocks sent small caps down hard, ending the day down almost 2% (though the rest of the market didn't fair nearly as poorly). The week was salvaged by some strong earnings reports.
Time Warner and Time Warner Cable
Time Warner (TWX) reported revenue that came in below consensus. The $6.744B of quarterly sales came in light compared to the $6.94B Wall Street was expecting. The pace the firm was buying back its shares also abated during the quarter, acquiring only $565M worth (expectations ran as high as $700+M). The firm reiterated their 2012 earnings guidance of "low double-digit" growth, suggesting $3.18 to $3.24, according to Needham's Laura Martin. She lowered her FY12 revenue estimates by almost 1% to $29.367B and maintained her HOLD rating on the shares.
Credit Suisse's Spencer Wang is more bullish on the TWX thesis. He's still expecting a TV ratings turnaround in 2012, and longer term, "significant affiliate pricing power." The analyst noted in his earnings review that TWX expects double digit Turner subscription revenue growth, hinting to long-term estimates. Wang views TWX as cheap, trading at a 20% discount to its peers (12x 2012E P/E). He's hanging with his $45 price target.
Time Warner Cable (TWC) also released earnings week with a report that was basically inline to below. Revenues of $5.404B landed just below Credit Suisse's Stefan Anninger's $5.420B estimate, with the bulk differential driven by lower than expected video revenues. The firm bought back $440M worth of its own stock (in line with estimates) and reiterated its financial guidance.
In an earnings environment punctuated by disappointments, Discovery Communications (DISCA) stood out with a positive surprise. The media company put up $0.76 in EPS, $0.06 higher than Nomura's Michael Nathanson was expecting. The analyst was actually more surprised by the underlying drivers of the upside: namely, international reporting healthy organic growth, while domestic was a bit light due to "slower advertising growth and slightly weaker affiliate dollars."
Even with the Summer Olympics, US ad growth in 3Q12 is expected to be "mid-single digits," below consensus expectations. When asked about pricing and ad market softness, management passed the buck, "attributing deceleration to ratings for NBC's Olympics and timing of DISCA's content cycle," according to Bo Tang at Barclays Capital.
Well, the EPS beats keep on coming for CBS (CBS). The network earned $0.65, a nickel better than Street consensus. According to Nomura's Michael Nathanson, it seems the media company has been doing a good job containing costs in its Entertainment division. While he's scaling up his forward estimates by $0.07 to $2.57 for 2012, the analyst also believes multiple expansion is somewhat capped given CBS's "exposure to slower growing local ad markets and lumpiness (and sustainability) in syndication revenues."
Needham's Laura Martin emphasized the company's return of capital in her earnings review note. CBS repurchased 9.4M shares for $301M and paid out $66M in dividends. She likes the stock — it's her top pick for 2012 — and reiterated her BUY rating and $40 PT.
Compared to competitor CBS, Viacom (VIAB) had a much tougher quarter, reporting a 7% drop in US advertising. Total revenue at the media firm was $3.24B, which was 14% less y/y, and 3% lower than Spencer Wang at Credit Suisse had forecast. He believes that VIAB is "in the midst of a cyclical period of ratings weakness (particularly for MTV and Nick, 2 of its largest networks)." He firmed his price target to $50 from $51 on slightly downward-revised estimates.
A couple of analysts — namely, Needham's Laura Martin and Nomura's Michael Nathanson — are more positive on the stock, but mostly for valuation purposes. VIAB is trading 9.3x Nomura's latest FY13 earnings estimates and faces a shrinking equity base from buybacks.
DreamWorks Animation SKG Inc. (DWA) reported a disappointing 2Q, with an EPS of $0.15 ($0.10 below consensus). This was primarily because of lower-than-expected margins for their film business. To counter this friction, management outlined 3 new areas of investment according to Barclays' Chris Merwin: TV series and live entertainment, casual gaming and social networking, and international expansion (JV in China). All 3 will weigh on profitability and the media analyst brought down his 2012 EPS estimate to $0.80 (from $0.95). He's still Underweight on the stock with a $15 PT.
With this quarter behind it, it appears WebMD (WBMD) is a patient in recovery. Its second quarter results were in line with its pre-announcement in late July. Revenue of $113M was down 20% y/y, but trending up 5% sequentially. Management maintained the guidance it put forth in its July pre-announcement, which forecasts 2012 revenue to be in the $455M - $480M range and EBITDA of $30M - $75M.
"This implies a more stable revenue and margin outlook than has been the case in recent quarters…," wrote Kevin Allen at Barclays. While encouraged by the recent stabilization, the analyst does believe the CPG/pharma marketing headwinds will hamstring WBMD in the near term. He's got a $14 PT, which "takes into account our view of WebMD's strategic asset value and potential earnings power in a recovery."
Finally, MDC Partners (MDCA) showed what BMO Capital Markets' Dan Salmon has been waiting for. The 8.3% 2Q organic revenue growth beat his estimate of 6% as he expects the stock to trade strongly on the news. He recommends "buying into strength as investors reward MDCA in the face of doubts around internal investment and leverage."
The international agency brought in over $30M in new business during the quarter, using its Healthcare Co-operative to lure in increased business from Pfizer. Deutsche Bank's Matt Chesler also likes the stock with a Buy rating and $16 price target on the shares. "The foundation for lower operating volatility and higher management credibility are in place – both of which are needed for the shares to work," he excitedly wrote about the firm's earnings report.
While other agencies performed better this past quarter, Interpublic Group of Companies (IPG) wasn't as lucky. It was a tough quarter as client loss/timing/pullback weighed on organic growth. Though reported 0.8% growth was way below the 2.9% the Street was expecting, the firm reiterated its 3% organic growth target. International performed better than expected and EPS beat by $0.02. Barclays Bo Tang tweaked down his 2012 EPS expectations by a penny to $0.79
Marketing and advertising services firm, Acxiom (ACXM) turned in a nice quarter with full year revs of $272 million (consensus was $269M). With impressive outperformance of EBITDA and EPS, the company raised the lower-end of its forward guidance from $0.55 - $0.65 to $0.60-$0.65. BMO's Dan Salmon still likes the story and raised his FY2013 EPS to $0.67 (from $0.63) and inflated his PT to $20 from $17. He rates ACXM shares OUTPERFORM.
Valassis (VCI) also turned in a quarter that seemed back on track. EBITDA was $76.8M beat the Street's forecast of $76.1M with mail revenue growth at 3.4%, trumping BMO Capital Dan Salmon's estimate of 2.9%. Summing up the quarter, the media analyst wrote, "Most important, the two tenets of our OUTPERFORM rating - shared mail operating income growth and share buyback - are clearly back on track." He took his PT up to $25 from $23 on the back of increased EPS projections ($4.18 from $3.97) for the year.
Wall Street seems to be granting Amazon.com (AMZN) a free pass as the shares stayed strong despite another miss. BGC Partners' Colin Gillis isn't so keen on the "Teflon Stock" and its declining operating margins, saying "we highlight that profit-less revenues growth is easier to generate than revenue that has profits." AMZN's $12.8B of June quarter revenue was less than the expected $12.9B - a 29.5% y/y growth and a 2.7% sequential decline. Gillis is concerned (and believes investors should be, too) about the number of (and lack of transparency into) Kindles sold, profitability of the hardware, the economics of the Prime program, and the revenue/profits of Amazon's digital business. He rates the shares Hold with a $220 PT.
Anthony DiClemente at Barclays sees the AMZN numbers differently. While fulfillment costs have been surging, the cost of sales was lower this quarter. "This is important for the investment thesis, in our view, as we view fulfillment cost trends as more cyclical, while cost of sales efficiencies may be more structural," he explained in an earnings analysis.
LinkedIn, the leading business social network, seemed to connect with investors and analysts alike with an impressive quarter. While the Street expected $216M in revs, the tech firm posted $228M and also beat on EPS. BMO's Dan Salmon called the growth in Hiring Solutions and Premium Subscriptions (i.e., recruiting) "nothing short of phenomenal."
Hiring Solutions' upside was driven by enterprise growth and cross-sell benefits. HS revenue was $121.6M, above JPMorgan's Doug Anmuth's estimate of $118.2M, representing strong enterprise customer growth (+99%). He noted that LinkedIn's page view growth accelerated from last year, reflecting increased engagement across new products. The shares traded up 16% on the news.
Scripps Network Interactive
It looks like Scripps Networks Interactive (SPI) is leading the pack...at least in terms of quarterly ad growth. SNI beat Barclays' Chris Merwin's estimates across most metrics, driven by 12% ad growth. Lifestyle media was the hero, putting up an impressive 11.3% expansion.
In its conference call, management gave guidance of a better revenue forecast, prompting Merwin to raise his FY EPS to $3.40 (from $3.32) and hike up his price target to $59 (from $55).
Regal Entertainment (RGC) reported $0.24 for the quarter, beating consensus expectations. But because attendance came in light, the firm turned in a top-line revenue number ($723M) that was also a little light. With the recent theater shooting and a volatile box office, Janney's Tony Wible believes it's hard to recommend the stock here. He does believe, though, that the move to premium screens (like IMAX and 3D), expense discipline, and a large dividend yield should benefit RGC.
National Cinemedia (NCMI) reported overall good results on Thursday that modestly beat expectations. Revenue of $110.1M came in slightly above consensus ($108.5M). NCMI reported satisfaction with the firm's first-ever upfront, considering it a success to get in front of approximately 500 clients, agency and media execs. Management alluded to the fact that it signed 2-3 deals after the upfront, bagging 12 new clients throughout the second quarter.
While Barclays' Anthony DiClemente thought the 3Q guidance was somewhat cautious, he sounded relieved that the firm reiterated its full-year forecasts. "Importantly, NCMI reiterated its revenue and adjusted OIBDA guidance for the full-year. On the call, management sounded generally optimistic, although noted a recent softening in the scatter market due to the Olympics, echoing similar comments from other media companies," he wrote in a note to investors.
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