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Published: July 20, 2012 at 05:11 PM GMT
Last Updated: July 31, 2013 at 05:11 PM GMT
Dentsu is making a cash offer for Aegis (AEGSF) at 240p per share. This values the firm at 3.16 billion GBP, a whopping 48% premium from Wednesday's close. Japan's Dentsu already owned around 30% of the UK advertising agency and Deutsche Bank analyst Patrick Kirby doesn't see much chance of a counter offer coming in from WPP or Publicis. This news means Dentsu becomes a real player on a global field, especially in the UK and the Americas, something the DB analyst believes will happen more gradually over time. It also means Havas and MDC Partners are in play, as both remain feasible M&A candidates
Facebook and LinkedIn
If dominating social media wasn't enough for the newly-minted IPO, word got out this week that Facebook (FB) is getting into the job board space. It appears FB will soon launch its own job board that aggregates listings from third-parties like BranchOut and JobVite. While the market is large (BranchOut is the largest employment app on Facebook with 25M registered users), J.P.Morgan's Doug Anmuth isn't worried about the impact on LinkedIn (LNKD). He believes people want to keep the social presence of their personal lives and business lives separate. A Facebook jobs app would almost certainly blur the lines between the two. While there may be some initial weakness in LNKD shares (shares were down almost 7% over the past 5 trading days), the analyst doesn't see a material impact to LinkedIn's business from Facebook's intentions to enter the job listings market. In fact, he recommends clients buy LNKD on any weakness.
Economics of Mobile Devices
Facebook took some heat during its IPO process because of its limited success monetizing mobile. This week, Needham analysts were out with an in-depth research report on the entire economics of mobile. In Mobile Economics: Value Creation Trends, the researchers tried to quantify the opportunity: there were 6 billion mobile phone subscriptions (87% of global population) at the end of 2011 and handset sales are growing in double-digit rates. This is part of a replacement cycle, as smartphones replace last generation's technology. Usage is also surging. The Needham report cites that worldwide mobile usage doubled in 2011 and is projected to grow at a 78% CAGR through 2016 (10X). New mobile revenue streams are global in nature and the highest value will go to those firms that "create content, services, and products that take advantage of the global scale" of mobile devices. The report also forecasts that volume caps and overage charges will continue to be the norm as usage growth puts pressure on mobile networks. "Business models innovation that integrates revenue streams from apps, advertising, commerce, recommendations, and/or social applications on mobile platforms holds out the greatest promise for pricing power and economic upside," wrote the authors of the research report.
Viacom (VIAB) went dark on DirecTV subscribers this week after the parties weren't able to sign a new affiliate fee contract. According to Nomura's Michael Nathanson, Viacom is arguing that its networks (Nick, MTV, and Comedy Central) account for almost 20% of all DTV viewing but only around 5% of its programming expense. After putting all the assumptions into the financial blender, the analyst believes Viacom will need to accept a minimum of at least $0.60 step-up from its current DTV deal (estimated to be around $2.25 per month per viewer). This would increase his total domestic affiliate fee growth to 10.5% over last year, 240 bps higher than his current 8% target. With expectations for EPS rising off this negotiation, Nathanson also thinks this allays concerns about Nickelodeon ratings. He maintains his Buy on the shares and a $54 PT.
Chinese Video and Youku
If online video has U.S. users - and analysts - captivated, China is undergoing its own structural shift in video consumption as media consumption is coming online, from local to streaming, from indoor to mobile. J.P. Morgan's Dick Wei, the firm's Asia Internet analyst, initiated coverage on Youku (YOKU) this week. He believes the firm is the clear winner to benefit most in the secular shift from traditional TV budgets to online video. He estimates a CAGR of over 70% over the next two years, settling in to about 5X current levels in 2014. Wei foresees Youku's leading position in user-generated content, search, social interaction, and iOS integration to further differentiate it from its competition. He's overweight on the shares with a 2013 PT of $30 and expects share price drivers to be "milestones in profitability, ad rate increases, unit content price declines, and a favorable amortization schedule starting in 1Q13".
TV Network Ratings
Anthony DiClemente at Barclays is anxiously awaiting the Summer Olympic Games and is already seeing its impact on TV ratings. The recently held U.S. Olympic Trials gave NBC an "easy victory" in 18-49. The Sunday night women's gymnastics competition scored an impressive 3.3 and 9 share, putting it in 1st place overall while 5 other nights of sporting events made it into the top 25. A strong performance from America's Got Talent also helped NBC record 5 shows in the top 10 for the week. Charlie Sheen's Anger Management tallied the highest rating ever for a comedy premiere on cable (2.3 rating and 7 share in tie for 9th place). This bodes well for the show's upcoming season. The BET Awards finished tied for the top spot, giving a much-needed boost for Viacom (VIAB) which saw mixed trends across its other networks.
Pandora (P) interrupted its regularly scheduled broadcasts (digital stream, really) to report its June audience metrics. Hours are up 77% Y/Y and active listeners up 51% to 54.5M. Bo Nam, an analyst at J.P.Morgan, is encouraged by this data, in-line with his firm's estimates. He believes the firm will be successful in scale its mobile monetization efforts, boosting mobile RPM with a local sales force. "With continued listener share gains, sales-force expansion, and buy-side system integration efforts, we believe Pandora is well positioned to take share of the $17B radio ad market," he wrote in a note to investors.
Earnings Revisions for Media Stocks?
The first half of 2012 was lucrative for media stocks, as many plowed through the S&P 500: Scripps Networks (+30%), Disney (+28%), Discovery (+26%), News Corp (+23%), and CBS (+19%). Michael Nathanson, Nomura's media analyst, is skeptical. Out of all the high-flying media stocks, only CBS had a meaningful positive forward earnings revision (+11%).
That means the remaining share price increases came from a massive expansion in multiples. That makes sense if earnings numbers will start moving up this quarter — something the analyst believes is unlikely to happen. Consequently, he's lowering estimates for most of his coverage universe and decreasing his price targets on Viacom by $3 to $54, Scripps Networks by $2 to $51, and lowering CBS and Time Warner by $1 to $34 and $41 respectively. News Corp eked out a raise of $1 to $24.
Time Warner Cable and Discovery Communications
Time Warner Cable (TWC) reports its 2Q12 results in early August and Needham's Laura Martin believes investors will be happy with what they hear. On the heels of TWC's acquisition of Insight Communications, Martin is jacking up her estimates. She forecasts that revenue for the quarter will go higher (9% y/y and 2% higher than previous estimates) to $5.382B, as will revenues out to 2013. She's maintaining her BUY rating and a price target of $95.
Martin can't find the same positive mojo for Discovery Communications (DISCA) when it reports at the end of July. She's lowering her numbers to reflect "lowered expectations in licensing agreements impacting US Distribution revenues and higher expenses in US Networks and FX movements…" Martin adjusted her expectations of 2Q12 revenue down 1% to $1.152B. She's sticking with her HOLD rating.
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