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Published: June 1, 2012 at 11:57 AM GMT
Last Updated: July 31, 2013 at 11:57 AM GMT
Well, the stock hasn't settled in yet and we've already gotten our first initiation piece on Facebook (FB). Needham's Laura Martin was one of the first out of the gate to publish on the record-setting IPO and she likes the stock. Specifically, she thinks the shares are "an option on the World." Her model values FB by measuring average time spent on the social network and multiplying it by "its powerful margin expansion engine." With 900M users spending a total of 14% of all time spent online globally on Facebook itself, she sees room for growth. She's initiating with a BUY rating and a $40 PT.
Pivotal Research's Brian Wieser will have nothing of it - he's initiated on the monster social network with a big, fat SELL rating. To be fair, when he published his initiation piece, shares were trading at $42 (they're now around $33). While he's optimistic of the firm's long-term opportunity, he's wary of the stock's current valuation. At this lofty valuation, Wieser takes issue with the market's pricing of FB as a less risky asset than Google (GOOG). He wants investors to keep their eyes on Facebook's operating expenses, expected to rise hard. His price target is $30 on the shares.
Well, after a tumultuous couple of weeks which included losing its new CEO, Yahoo (YHOO) finally announced an agreement to monetize its Asian assets. This "value realization plan" will have Alibaba repurchase up to 50% of YHOO's stake in the firm and also establishes a framework for monetizing YHOO's remaining shares via an IPO of Alibaba and a sale of YHOO's remaining stake. This deal values Alibaba at $32B, or $7.16/share after tax. Yahoo has committed itself to returning these gains to shareholders via an increase in the share repurchase program (it's now $5.5B). Barclays' Perry Gold believes this whole development is important because it "finally paves the way for partial short-term monetization of YHOO's Asian assets while allowing for future upside potential upon an Alibaba IPO."
Investors seemed unimpressed, as shares barely registered the news. JP Morgan's Bo Nam believes that uncertainty around the closing (6 months off), Alibaba's ability to finance the deal, and a higher tax rate all contribute to some shareholder push-back. Ultimately, he believes that Yahoo has lost credibility with the market and investors are therefore not assigning much credit to the deal until it's officially done. He believes the deal implies a value on YHOO shares of $19-$20.
Nomura's Michael Nathanson gives investors 5 reasons to remain bullish on Disney (DIS). Here's why:
Accelerating return of invested capital: The media firm's investments are paying off and 2013 might mark an era where double-digit returns are likely.
Upside to shareholder returns: The media analyst believes that buyback targets will grow as the estimated $8B in cash on DIS's balance sheet will expand, as well.
Done doing the hard climb: Disney faced many one-time headwinds going into 2012 that contributed to earnings misses in the past. Those days are likely to be done.
Expanding margins at Theme Park: Investments in domestic theme parks should begin to pay off in late 2012/early 2013.
Solid affiliate fee growth in Cable Networks: Offsetting long-term locked-in sports rights increases, Cable Networks looks primed to grow its affiliate fees in the solid high single digits.
Nathanson raised FY12 and FY13 EPS estimates, now making his 2013 EPS forecast of $3.50 (from $3.39), $0.05 above the Street. He raised his PT $3 to $51.
Barclays' Global Conference Review
This week was also Barclays' Global TMT conference. Many major media players presented there, even if there wasn't any incremental short-term news scooped. Here's a rundown of Barclays conference from the perspective of Barclays analyst, Anthony DiClemente.
WPP (WPPGY): No short term news but delivering against 2012 expectations. Revenue growth coming from digital and faster growing markets.
Scripps Networks Interactive (SNI): Ratings strength should lead to a solid upfront. Barriers still high for online programming, but competition a risk. Investors focused on capital allocation as SNI determines how to use its strong balance sheet.
National CineMedia (NCMI): Cinema advertising remains powerful medium. Upfront event well attended with a lot of interest. Has created a business development group to interface directly with clients, as opposed to media buyers. Still seeing strong CPMs in 3Q with July and August pretty much sold out. Analysts believe NCMI will benefit from hotter M&A environment.
Time Warner (TWX): Television becoming increasingly important part of business (80% of operating income in 2011). Demand for original content still strong. Warner Bros able to offset up to 73% of production costs from US licensing and another 50% from international via syndication.
Regal Entertainment Group (RGC): RGC has generated $370M of free cash flow on a trailing basis over the last 5 years. The firm is committed to return capital to investors through dividend increases and accretive M&A opportunities.
Interpublic Group (IPG): The firm is facing headwinds from client losses throughout 1H12 and is aggressively managing its cost structure in Europe. Emerging markets still performing well and social, though small, is one of the fastest growing parts of the business.
CBS (CBS): The media firm expects to lead the market in the upfront, forecasting 10% growth in CPMs. The syndication pipeline is humming and CBS has hedged its digital distribution deals with SVOD services like Netflix well. Investors should expect strong share repurchases throughout the year.
On other fronts, investors were surprised by the strong performance put up by Pandora Media (P) this quarter. Revenue, EBITDA, and EPS all came in ahead of estimates. Revenue was $81M (up 58% y/y) and 8% higher than expected. While the music streamer raised 2013 guidance, it's doing so by beefing up its local and national sales force in anticipation of capturing its share of the $17B terrestrial radio market. And the firm is generating some monster user metrics on its way. Listener hours grew 92% Y/Y, active users grew 53% Y/Y, and registered users reached 150M.
Credit Suisse's John Blackledge believes that P's content costs should rise to about 60% of its revenues while it grows its listener base, causing a squeeze on profitability. To upgrade the stock, the analyst needs to see Pandora improve its monetization of mobile streaming. He's Neutral on the shares and has a $12 price target. Needham's Laura Martin believes not all mobile users are created equal and the fact that 48 car and truck models have announced they will build P into their dashboards foretells future wins on these zero net add listeners. She's got a BUY on the stock.
PayPal made two big announcements this week that take it one giant step closer to towards ubiquitous offline payment acceptance. According to JP Morgan's Doug Anmuth, eBay's (EBAY) payment unit announced partnerships with VeriFone and Equinox, the #1 and #3 largest point-of-sale terminal providers. The firm also publicized that it had signed 15 new deals for its offline offering with retailers. "We think upcoming enhancements to PayPal's digital wallet – including loyalty card tracking, coupons, and the ability to change payment sources at a later date – could help drive consumer adoption," wrote the analyst in a research update.
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