Media Stocks Have an Eventful Week - 9-7-12

Read this week's Media Wall St. Report: Subscribers click here. To order your Jack Myers Media Business Report subscription,click here.

Amazon launches new Kindles, signs a big content deal; Less Facebook selling, and AOL and News Corp both see price targets rise. Plus LinkedIn, Netflix, and Amazon in this week's Wall St. Report.

Facebook

In an 8-K filed with the SEC on Tuesday, Facebook (FB) announced a few things, including the fact that CEO Mark Zuckerberg will not sell any more stock for at least a year (he sold over $1B worth on the IPO). In retrospect, it turns out that selling at the $38 IPO price was a smart move - the social media behemoth trades at about half that today. Additionally, the firm will withhold 101 million shares of stock that are owed to employees and retire them to pay off its tax bill.

J.P.Morgan's Bo Nam believes that this move underscores the long-term bullish thesis on the stock. "The Street has been heavily focused on the large lock-up expirations coming in October and November, and we believe the combination of taking Mark Zuckerberg's shares out of that equation and also shrinking the outstanding share count by 101M shares (~3.7%) shows management's confidence in Facebook's long-term story," the analyst explained in a research note sent to investors this week. JPM is still bullish on the shares, with an Overweight rating and a $30 PT.

Barclays' Ryan Ripp basically went in the other direction on the massive social network, lowering his price target on the stock. Given ad revenue deceleration and an elevated valuation, he's looking for evidence from FB that the company's mobile monetization strategy is gaining traction. He doesn't yet see it and he lowered his PT big-time to $23 (from $31).

AOL

Needham had a big price target change for AOL (AOL) this week. Laura Martin took her PT up to $40 (from $34) on a variety of factors. The media analyst sees hidden asset value (like patents) at AOL owing to its $2B in NOLs that could be turned into cash. Operating momentum is strong - AOL has beaten earnings estimates in 2 of the past 4 quarters. Martin also sees access revenue declines moderating with churn down in this business line down to 2% per month. She also likes AOL's Patch and expects it to be a catalyst next year. Lastly, she envisions AOL doing a better job raising CPMs in its display business. She has a Buy rating on the stock.

LinkedIn

Barclays released an interesting report on LinkedIn (LNKD) this week. According to analysts, the most common request they receive from investors is about the total addressable market (TAM) for the company's hiring solutions. So, Mark May and team responded in kind by pinning a $7B number on the market size. Of that, the analysts believe the business social network could potentially see $3.4B in revenue. Compared to Barclay's $502M revenue estimate for Hiring Solutions in 2012, there's significant runway for the hiring solutions opportunity for LNKD. Barclays is Overweight LNKD and has a $125 price target on the shares.

Amazon.com

Amazon.com (AMZN) was the subject of numerous research reports this past week. First up, the online retailer signed a multi-year licensing deal with EPIX (a JV between Viacom and Paramount), adding 3000 titles from Paramount, Lions Gate, and MGM to Amazon's Prime Instant Video offering. Regarding this partnership, Janney's Tony Wible wrote, "AMZN has improved its distribution/interface with new apps on game consoles and the iPad/iPhone while closing the content gap with NFLX."

Perry Gold, an analyst at Barclays, detailed his team's expectations on the new line of Kindles unveiled at an event this week. With a new-improved tablet line that the analyst says is priced aggressively, Gold thinks AMZN can grow its estimated 22% marketshare in the US media tablet market and mid-single digit share of the global market it currently controls. In addition, new Kindles may serve to stave off share gains made by the Google Nexus 7 and a possible iPad mini launch. "However, we believe the strategy for AMZN remains building share of the media content market as well as a reinforcing a higher rate of Amazon e-commerce activity for Kindle users," the media analyst wrote in anticipation of the event.

And when the new product announcements hit the wires, analysts were generally pleased with the new Kindles. The firm intro'd 3 Kindle Fire HD models and something new, called Kindle Paperwhite, a new eReader with a front-lit HD screen. While J.P. Morgan's Doug Anmuth admits that there weren't any real surprises, he did concede that the newer Kindles and Kindle Fires are tipping toward the higher end of tablets than he originally expected. The Kindle Fires will include Special Offers on the lock screen, including coupons for Amazon's digital store as well as ads from participating brands like AT&T, Discover, and Intel.

Netflix

Amazon's good news may spell some bad news at Netflix (NFLX). At least, Janney's Tony Wible thinks so anyways. The new EPIX deal with Amazon accentuates its own video offering. That in turn may put a kibosh on expectations that Amazon would buy NFLX. EPIX content is among the most expensive - AMZN is unlikely to pay twice for the same content.

And with this content, AMZN becomes a stronger competitor to NFLX - especially on the movie side. With half of NFLX customers subscribing for access to movies, EPIX is NFLX's only access to Pay TV window content. Wible's got a NEUTRAL rating on NFLX and believes competition, slower growth, expensive global expansion plans should offset profitability for years. He maintains his $53 fair value estimate on the media firm.

News Corp.

Even as Fox Interactive chief Jonathan Miller announced his departure from the company, News Corp. (NWSA) got a lift this week through an upgrade to Overweight by Barclays' Anthony DiClemente. In a research note sent to investors, the analyst revisited his sum-of-the-parts analysis on NWSA and now sees a target price of $28 (from $27). DiClemente is a big fan of sports programming and a believer in the rising value of sports content. News Corp's RSNs, Fox International, and STAR TV all benefit from the "strong followings viewers have for their local sports teams".

NWSA is in the midst of a multi-year renewal cycle for domestic affiliate fees. If an investor uses the DTV carriage agreement from last fall as a benchmark, the average revenue per viewer for Fox News and FX is pretty low compared to its peers. So, there's significant room for the firm to expand how much it earns on a per viewer basis. With growing international networks, a good year for political advertising, and improved capital allocation policies ($10B buyback authorization and plans to spin-off publishing assets), Barclays believes just the Entertainment business is worth more than NWSA's current stock price.

If you are receiving this report, you are a registered subscriber to Jack Myers Media Business Report or are receiving it as part of a registered corporate subscription. As a subscriber, Jack responds personally to your e-mails, requests and comments. He is available to speak at your company events. In addition to Jack Myers Media Business Reports, your subscription underwrites MediaBizBloggers.com, Women in Media Mentoring Initiative, Jack Myers Wall St. Report, Jack Myers Video Media Report, plus our exclusive industry economic forecasts, trend forecasts and corporate performance research. Re-distribution in any form, except among approved individuals within your company, is prohibited. As a subscriber you have full access to all archives and reports at www.jackmyers.com. If you require your ID and password, contact maryann@jackmyers.com