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Published: March 2, 2012 at 10:46 AM GMT
Last Updated: March 2, 2012 at 10:46 AM GMT
Online is where it's at as more data and earnings reports confirm strong growth prospects globally for online media.
As investors anxiously await Facebook’s massive IPO, there’s been a lot of soul-searching and analysis of the past year’s class of tech IPOs. Business Insider has a great graph showing that even though it feels like there’s a much ballyhooed public offering every week, it still doesn’t come close to the volume investors saw in 1999-2000. This may very well be the new normal for tech IPOs. One of the most successful tech IPOs, Amazon.com (AMZN), is still partying as it expands into the tablet market. That said, Perry Gold at Barclays took down his bullish estimates on sales figures for Amazon’s Fire (tablet) and Kindle (e-reader). After doing some channel checks, Gold believes Amazon should sell 17.1M tablets and 18.4M Kindles.
"While we believe the Kindle Fire launch in 4Q11 was a success as it catapulted AMZN to the #2 position in the tablet market (after Apple), we think our 4Q11 5.5M Kindle Fire sales estimate was too aggressive," he wrote in a research note revisiting Amazon’s estimates. He brought his target price down to $180 from $190 in the missive.
Speaking of tech IPOs, social media might be the next breeding ground for future stock floats and the field has Needham thinking. In a report this week, analyst Kerry Rice posited that "word of mouth" marketing at networks like Facebook and Twitter "heightens engagement with consumers, creating 'a virtuous cycle of new conversations and higher engagement.'" At stake is a market that could exceed $40 billion in 2015, according to Gartner.
Needham’s Rice also zeroed-in on the billions of mobile devices that are serving to untether conversations from the desktop. "Used as a social media tool, mobile devices should fuel the future use and engagement of social media," wrote the media analyst in a special note to investors entitled Social Media Engagement.
The researcher determined that an hour of engagement by a single person could represent as much as $266 of revenue at maturity for media marketers. So, simple math would have it that every 10 million people who visit a website for a 60 minute visit should represent $2.6 billion over time. That’s probably what got IPO investors in the space so excited.
"Tectonic Shifts in Online Display Advertising" read a headline of a research piece Spencer Wang, an analyst at Credit Suisse, wrote this week. His thesis is that online display is undergoing several significant changes including the big-time emergence of mobile and video formats and a structural shift from direct to indirect sales in the industry.
The upshot of near 20% revenue CAGR for the mobile and video categories is that Wang feels more comfortable with his projections for Google (GOOG). Driven by the search firm’s end-to-end solution for online display advertising, he feels Google can sustain 16% CAGR over the next 5 years.
While Google will enjoy this shift, Yahoo (YHOO) probably won’t, according to the analyst. The headwinds of declining user engagement, limited mobile offerings, and downward pressure on CPMs on its inventory will ultimately mean that YHOO loses share in U.S. online display (from 12.5% to 8% in 2017).
Amid all this online excitement, it was a good opportunity for Pivotal Research to launch its coverage of the Internet sector. Takeaways from Brian Wieser’s initiation piece include: a valuation on Facebook ($81 billion), a buy on Google (GOOG) — Pivot’s top sector pick with a PT over $800, and a buy on Yahoo (YHOO), assuming the Internet firm monetizes its Asian assets and management becomes a more stable presence on campus.
If Google’s lighting up online display, Cinemark’s (CNK) lighting up all of Latin America with its rollout of theaters. 4Q11 beat expectations, driven by strong domestic concessionary increases and continued secular growth in LatAm. The stock dropped almost 4% on the report, something Bo Tang at Barclays attributed to "lackluster 1Q12 international box office pacings." Feeling Cinemark’s international biz is underappreciated, but slowing. He took down his international estimates on the back of the earnings call. In addition to its success in Latin America, Janney’s Tony Wible also sees CNK benefiting from 1) share gains, 2) premium screen initiatives, and 3) a better film lineup. He increased his fair value estimate to $24 (from $19) but would rather stand on the sidelines because he lacks conviction that there will be upside earnings surprises.
If theaters are doing well, that should mean good things for National Cinemedia (NCMI), which sells in theater advertising. Sure enough, NCMI turned in an encouraging performance, topping at least Barclays’ estimates. "While the stock has outperformed nicely YTD (+18% vs. +8% for the S&P), we think shares may still have some room to run as visibility appears to be improving and a more concerted strategy to trade price for volume could exceed expectations, and as a result, our target goes to $17," wrote the bank’s research division.
Clear Channel Outdoor Holdings (CCO) reported 4Q results that fell short of consensus expectations. The miss came primarily from domestic revenues coming in light. Barclays analyst Chris Merwin chose to see the cup as half full as 1Q pacings are already trending higher (+5%) in America while international margins are coming in fatter than expected. Nevertheless, he and his team are maintaining a guarded stance on the stock, with an Equal Weight rating and a $12 PT.
Credit Suisse is expecting good things from Charter Communications (CHTR) for the fourth quarter of 2011. With Tom Rutledge as new President and CEO of the cable company, analyst Stefan Anninger is raising his estimates for PSU net additions (moving from a loss of 17k to a gain of 49k). He’s doing so off the back of stronger than expected results from competitors Comcast and Time Warner Cable.
This growth isn’t coming cheaply and CHTR just filed a debt prospectus to raise more money to fund marketing and other opex. So, while he raised top line estimates, Anninger took his 4Q EPS down from $0.45 to $0.35. He’s still bullish on the firm’s high speed data (HSD) opportunity, even if it needs to spend more and cut prices to get there.
"We acknowledge that Charter is currently trading above our current TP. However, we maintain our Outperform rating & await CHTR's 4Q11 results to further update our forecasts, TP and rating," Anninger wrote, sounding cautiously bullish.
The Credit Suisse analyst sounded similarly positive on DISH Network’s (DISH) upcoming earnings season and he wasn’t disappointed: 4Q11 results came in relatively in line with his estimates. DISH actually turned in a better performance on churn and expense growth but performed less well when it came to ARPU growth (3.6% vs 4%). But Anninger sees DISH as a value play. After conservatively stripping out the market value of DISH's spectrum assets, its business trades at an EV/EBITDA multiple under 4 — "too cheap in our view" he wrote in an earnings preview.
Internet travel giant, Priceline.com (PCLN) is reporting on Monday after the close and Barclays Anthony DiClemente thinks the firm outperforms his and the Street’s estimates. Strong European leisure demand, good execution at Booking.com, and share gains in APAC and LatAm should drive numbers even higher than the analysts' expectations of $4.67B gross bookings (+43% Y/Y) and EPS of $4.98. The stock may not have further to climb as it’s already up 26% on the year to date versus 8% on the S&P.
JP Morgan’s Doug Anmuth was busy triangulating Priceline’s expected performance from that of other online travel agencies (OTA) that have already reported. Expedia and Orbitz both turned in impressive numbers, reinforcing PCLN as Anmuth’s top Internet pick with a $672 PT on the firm.
WebMD (WBMD) reported 4Q11 results at the low end of guidance. WBMD had total revenue of $151M (down 11% yoy) driven by declines in advertising and sponsorship revenue. While the company repurchased 800k shares on the quarter, it also announced a tender offer to repurchase $150M of common stock somewhere between $24.50 and $26. This quarter also marked management’s fourth negative revision since July, now with a CY2012 revenue forecast at $500-$535 million (down 4-11%). That was enough for Barclays Mark May to lower his already below-consensus estimates after what he deemed "another disappointing outlook from management."
Netflix (NFLX) took it on the chin this week, trading down almost 8% -- ostensibly off the news of Comcast’s Streampix launch. Investors might be viewing the new offering as a direct threat to Netflix’s streaming offering but Barclays Anthony DiClemente doesn’t seem worried. His view is that this offering is more a part of the general trend towards TV Anywhere and is already reflected in the rising cost of content. He’s looking beyond this $4.99/month service and instead is focusing on the fact that Netflix does have the largest addressable market. He’s sticking with his Overweight rating on NFLX.
Whereas NFLX has struggled of late, TIVO (TIVO) has been on a tear, up almost 50% since last August. Tony Wible at Janney has a BUY rating on the firm and a $18.50 PT. He believes TIVO will benefit from rising competition in the IPTV space and from its recent legal victories, which should "enhance its ability to monetize its IP" while the massive cash balance ($500M+ in net cash) should provide a nice floor for the stock. TiVo should benefit in the long term from the collapse last week of Canoe Venture, the joint venture of six major cable operators intended to advance interactive TV technology standardization and distribution. While there may be some short-term fall-out from the Canoe collapse, the long-term implications should be positive.
In the face of somewhat drab earnings results put up by its competitors, investors cheered Lamar Advertising’s (LAMR) performance this quarter with a nice 5% pop. The firm reported earnings 6% above the estimates of Goldman Sachs’ Drew Borst. With a 1.5% higher revenue number and 2% lower expenses, LAMR saw strength in national ads (up 3% yoy) and digital (which drove half the growth in national). Film studios are pushing hard with marketing and that’s benefiting Lamar.
Borst felt management was a little cautious with forward guidance, so he’s raising his price target slightly from $32 to $34. Barclays analyst Anthony DiClemente massively raised his PT to $32 (from $22), which is where the stock is trading around now. He still thinks shares are near full valuation, though.
In spite of just a slight beat and mixed guidance, JP Morgan still thinks any material pull back in HomeAway (AWAY) shares would represent "a good buying opportunity." Investors chose to stay away and dumped the stock after earnings were reported to the tune of −10%. It appears what’s got people nervous was the vacation rental firm’s 2012 guidance. AWAY cited 4Q European weakness, which appears to be macro related. JPM analyst Shelby Taffer brought his 2012 revenue estimates down to $279M (still up +21% from last year) and warns that as 54 million insider shares will be free to trade by the end of February.
The short term investments needed in marketing and R&D are also keeping Credit Suisse’s Stephen Ju from getting more constructive on the name. Without a material catalyst near-term and dampened margin expansion (he thinks AWAY is undercharging its property owner/manager client base), Ju lowered his estimates to $27 (from $28) and notched down his EBITDA projections for 2012 by15%.
Mark May at Barclays read AWAY’s quarterly revenue report more positively. He cited strong cash flow (+19%) of $15M but that didn’t stop him from bringing down 2012 numbers in the wake of management guidance. May and Barclays are sticking with their Equal Weight rating: "we continue to believe that HomeAway can sustain its leading market share, and we see significant runway for growth in its core business in addition to meaningful incremental opportunities from refining its pricing strategy (e.g., tiered pricing) and by rolling out new offerings and service capabilities."
Was Time Warner Cable (TWC) Linsane to have even though of pulling MSG, MSG+, and Fuse programming from the TWC system? It appears so and an announcement came out this week that resumed broadcasting, a positive for Madison Square Garden (MSG) and fans who can now see the phenomenon known as Jeremy Lin for themselves. The news prompted Needham’s Laura Martin to say, "We think the positive news of this settlement along with the sports media sensation that is Jeremy Lin of the Knicks basketball team, along with having won 8 out of 10 of their last games, and the fact that the NHL Rangers hockey team are in 1st place in their division, should provide upside for the stock." She’s got a $37 TP on MSG.
If Jeremy Lin is the star of the Knicks and MSG, then SIRI is the crown in Liberty Media’s (LMCA) investment portfolio. The satellite radio play increased over $800M in value in the last quarter alone. Janney’s Toby Wible sees the improvement in SIRI’s fundamentals as a double edge sword for LMCA as it becomes increasingly more expensive to buy control of the remaining 60% of SIRI Liberty doesn’t own.
Wible is pretty bullish on the whole LMCA thesis with its SIRI holdings, share buybacks and sale of non-core assets. Plus, investors get exposure to the company’s investment in Starz and the rising demand for premium content. After LMCA beat on both revenues ($947M) and EBITDA for the last quarter of 2011, Wible is raising his fair value estimate on the firm to $113.
On Thursday, Viacom (VIAB) announced it has agreed to sell $500 million in 1.25% senior notes due 2015 and another tranche of $250M worth of 4.5% senior debentures due 2042. The media conglomerate says it will use the proceeds for general purposes and the repayment of other outstanding debt.
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