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Published: February 10, 2012 at 09:45 AM GMT
Last Updated: July 31, 2013 at 09:45 AM GMT
In a week that was dominated by the Facebook public offering and debates over the validity of its valuation, several companies issued performance results that demonstrate the mixed bag that is the media industry today. 2012 ad sales may not portend well if Viacom's (VIAB) mixed results are indicative of the health of the advertising environment. The media conglomerate sees expected US ad growth of −3% (versus CSFB's Spencer Wang' estimate of +2.5%). FY1Q12 results were on target but the analyst is concerned that the firm's ratings have peaked.
"Combined with a choppy scatter market, there could be risk to ad growth in FY2012," the analyst wrote in a note to clients. "Counterbalancing these concerns is undemanding valuation and a large capital return program." He's maintaining his $51 price target on Viacom.
Nomura's Robert Fishman believes that the firm's massive buybacks overshadow the weakness in ratings. He's raised his price target up to $54 (from $53) on the announcement. Here's what Fishman had to say about the value investor favorite: "We believe that many investors are taking a longer-term view that Viacom is simply too cash-generative, too cheap and too resilient to trade below these levels versus its peers." Goldman Sachs' Drew Borst is of like mind and believes that VIAB will continue to perform with good shareholder returns. He's at $53 (down from $54) on his target.
It was game on for investors in Electronic Arts (EA) as the firm turned in a good quarter, sending the stock up 6% on Thursday. But looking under the results covers, Goldman Sachs isn't all that impressed. Analyst Brian Karimzad is particularly troubled by the gaming firm's rising opex. He's still waiting to see how much the 1.7 million users pay for the new Star Wars game and sees customer acquisition costs rising for EA. Karimzad is leaving his $22 price target unchanged.
Investors began dumping QuinStreet (QNST) upon first blush of an earnings miss. The stock traded down almost 10% initially, only to end the day actually up. EPS might have been inline, but the online lead generation company came in light on revenues and its guidance for 2012.
The education sector seems to be providing the biggest source of weakness, prompting JP Morgan's Douglas Anmuth to lower his estimates. QNST is being hurt by new regulations that are pushing its clients to change their marketing initiatives. JPM is sticking with its $13 PT.
Of all the activity this week, IAC Interactive (IACI) resonated the most with analysts. Both Barclays and Credit Suisse were impressed with Barry Diller's Internet Company. Higher revs, EBITDA, and EPS compelled CSFB's John Blackledge to raise his estimates and price target (from $52 to $56). For him, the investment case is all about execution, share buybacks, and limiting any unnecessary M&A. Barclay's Mark May noted that IACI's search business was exceptionally strong, topping 35% year over year growth.
Media measurement firm Nielsen Holdings (NLSN) will be announcing its earnings on Monday, February 6th and Needham's Laura Martin is maintaining her Hold rating. She's expecting 4Q11 revenues of $1.435B and an adjusted EPS of $0.51, up 44% over last year's same period.
Needham's Martin is taking a similar approach with her earnings estimates for Discovery Communications (DISCA), reporting on February 16th. Her Hold rating is predicated on a slightly better distribution business and international networks. She's standing by her $2.79 operating EPS forecast for 2012.
She's more juiced, though, on the future prospects for Scripps Networks Interactive (SNI). She's excited to see double digit growth in revenue and profitability growth in the media firm's Lifestyle Media division. Martin also thinks the prospects for the smallest of only nine firms that produce expensive, high-quality programming for the $300B TV ecosystem. Her $62 PT leaves room for potentially 40% appreciation.
Investors partied like it was 1999 when AOL reported this week. The stock is up over 16% just the past 5 trading days. The online media play reported EBITDA way above the Street's consensus. Adjusted earnings may have declined 21% from last year, but $125M was still way ahead (22%) of CSFB's John Blackledge's estimates. For investors in AOL, the analyst thinks, "Longer-term view unchanged, [we] still believe AOL should continue to lose share of display advertising and expect continued declines in the subscription business."
"But we believe AOL's cash position, inherent asset value of existing businesses and capital allocation strategy limit downside," Blackledge wrote in a post-earnings investment summary.
Anthony DiClemente has a contrarian approach when it comes to AOL. He thinks AOL's results are not only encouraging, but he sees AOL's turnaround strategy taking hold. He's raised his PT to $19.
Amazon.com's (AMZN) earnings this weak confounded analysts. Its results were mixed — really mixed. Revenues were up 35% from last year ($17.4B in Q4). A big number, but still short of the expectations of Spencer Wang at CSFB. Investors were primed to be concerned about margin pressure, so the top end revenue shortfall came as a surprise, sending the stock down over 7% on the news.
Perry Gold at Barclays was also caught off-guard by the revenue numbers, especially the light Q1 guidance. In sympathy, he took his numbers down, resulting in a PT of $190 (from $225). But, perhaps, JPM's Bo Nam read the muddled tea leaves the most optimistically. He sees the retailer's margin-crushing move away from first party selling to pushing 3rd party inventory as a key driver to the long term success of the firm. "As a result, Amazon continues to show strong ability to take share of overall eCommerce and its flexibility in pushing 1st party versus 3rd party inventory appears to be a big advantage going forward," he wrote. That said, he lowered his $235 PT to $210 on the results.
Time Warner (TWX) received a downgrade on valuation from Barclay's Chris Merwin. The stock is up nicely from September 1st, 2011, returning 21%. Barclays took its rating down on the firm, even though it maintained its $38 price target. The analyst thinks the firm will have a tough time repeating its best ever quarterly performance in its Film segment — the last installment of Harry Potter helped that. Time Warner's TBS is seeing mixed trends while Warner Brothers appears poised to sign a large-scale streaming deal that the analysts feel is already baked into the stock.
Pivotal Research Group published its 2012 Upfront Preview this week. The equity research team sees a growing positive sentiment for media stocks this year based upon firming — rising, actually — CPMs (8%). They expect Network TV 2012-2013 prime time advertising to benefit the networks and provide a halo effect around this perceived strength for Cable networks like Time Warner, Walt Disney (DIS) and News Corp, Viacom , AMC and Scripps.
Brian Wieser, the author of the report, wrote, "In lieu of conclusive evidence from buyers (which will not emerge until April or May) indicating dollar volumes are significantly up or significantly down, we work backwards from our expectation of a flattish network TV revenue – and thus volume – environment, to arrive at our preliminary +8% CPM estimate."
Brian Wieser and PRG were busy this week as they initiated on Advertising Agency Holdings Companies. In the kickoff of coverage on the sector. WPP (WPPGY) is the firm's top pick in the sector. The report declared, "We like the company's long-term exposure to China – possibly the most significant of any western media-related company – its independent digital platform and its dominant media services business." Its $75 PT on the ADRs is an almost 30% premium from today's price. Pivotal also like Interpublic Group (IPG).
As to the industry, Pivotal sees it as being completely under-appreciated and the smart way to play digital advertising. "Digital media is increasing the importance of agencies and service providers as filters and navigators of ideas. As such, the agency sector is literally a 'digital dividend' on the application of technology to marketing," Wieser wrote in the initiation piece.
Barclays Capital published this week on the connection between election years and media stocks. In Does Political Advertising Drive Media Stocks, analyst Bo Tang found that while "political advertising is only 1.4% of the US ad market...we believe it will account for over 25% of the growth in 2012." He and his team see this season to be a record year for political advertising with local TV stations the biggest beneficiaries, as they typically see 75-85% of political ad dollars. That should spell good news for CBS, Disney's ABC and News Corp's Fox.
Speaking of television, Nomura's Michael Nathanson reported on the National Association of Television Program Executives (NATPE) annual meeting. His 5 main takeaways? 1) The analyst is bullish on local TV, 2) sees the best premium content increasing in value, 3) expects Netflix (NFLX) to continue its push into original content, 4) forecasts tighter focus on getting serious about the measurement of data and 5) increased chatter about the potential success of a virtual MSO as the industry waits to see what Apple TV really looks like.
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