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Published: September 21, 2012 at 05:18 AM GMT
Last Updated: July 31, 2013 at 05:18 AM GMT
As we pull into the final lap of 2012, investors (analysts, too) have lots of questions regarding where the media industry is headed next year. If the year were to end now, Nomura analyst Michael Nathanson believes the year will be remembered for its "unusual combination of significant media multiple expansion and minimal positive earnings revisions". To this end, he published a report that was mainly full of (unanswered) questions.
Specifically, Nathanson is concerned about the health of the ad market. We've got the negative impact of Olympic spending on non-NBC networks blurred by the positive catalyst of healthy local political spending. To see how things really are progressing, we'll have to wait for the 4Q scatter volumes. He's also interested in peering into the sports-costs-crystal-ball, as 2014 will be the beginning of "NFL and MLB inflation". What will other sports packages begin to go for?
Despite DVR benefits, broadcast ratings have been surprisingly soft. The analyst wonders what will happen when the singing shows "ratchet up the pressure". Lastly, Nathanson questions whether the domestic box office will bounce back. With a weak 2012 box office, which studios are best positioned for next year?
While the research piece asked numerous questions, it looks like investors will have to wait for 2013 to get the answers.
Box Office Projections
Speaking of the box office, it doesn't appear that holiday cheer will offset the summer box office blues. And to prove it, Nomura's Robert Fishman is taking his numbers down. He's decreasing his 2012 domestic box office revenue projection to $10.6B. That number is up 4% over last year but short of the 7% growth the analyst had originally forecasted.
The analyst, who covers the movie theatre industry, also brought down his numbers on the theaters themselves. He's lowering his EPS projections pretty substantially on both Cinemark Holdings (CNK) and Regal Entertainment Group (RGC). Fishman rates RGC Neutral but likes the current valuation at CNK, which he feels "provides a compelling entry point given the company's market-leading position in a strong Latin American box office industry". He rates Cinemark shares Buy with a $27 price target.
Laura Martin at Needham used this week to lower her estimates and target price on Facebook (FB). She's disappointed in how slowly the social network has moved to monetize mobile users and activity. She calculates just $150M out of a total revenue pie of $4.9B has come from mobile devices this year. That said, she sees longer term value in FB's move to add commerce options alongside conversations. Martin also thinks Facebook has done a "great job" building a global platform.
She's lowering her FY12 and FY13 revenue and EPS estimates, accounting for growth slower than she originally expected. She now sees revenues hitting $6.2B (up 26% Y/Y) in 2013 with an operating EPS of $0.58. She still has a Buy rating on the stock as she believes the company will find a way to appropriately monetize its global platform, especially for video and commerce applications. She's moved her PT to $25 from $40.
J.P. Morgan's Bo Nam liked what founder Mark Zuckerberg had to say during an interview Tuesday at the TechCrunch Disrupt conference. Zuckerberg claimed that analysts and investors were underestimating FB's opportunity in mobile. The CEO stated that he feels his company can make more money from a mobile user per time spent than a desktop user. The analyst believes that, too, and estimates FB's mobile ad revenue can top $900M in 2013 driven by higher CTRs and CPMs. Nam believes the risk/reward is attractive here in FB shares and has a $30 PT and an Overweight rating on them.
Local Ad Spending
BIA/Kelsey published its periodic report on local advertising spending (see the media and advertising categories here) and the numbers look 'growthy'. According to the research firm, retail spending on local advertising will exceed $26.8 billion in the U.S. during 2013. Of that number, slightly over $4.2 billion will be spent online. "Within the online segment, video display is seeing some of the greatest gains, with the top five business categories expected to account for an increase of $232 million in local spending nationwide in 2013 alone," Mark Fratrik, chief economist of BIA/Kelsey, wrote in the report.
Interpublic Group of Companies
On the subject of local and national advertising, Anthony DiClemente came out banging on the table with a positive note on Interpublic Group of Companies (IPG). Of all the companies in the analyst's universe, he believes IPG "benefits the most from accommodative credit markets". This, combined with the firm's cash cushion, further reduction in share count and reduced interest expense from debt repurchases and refinancing, bodes well for the agency going into 2013.
DiClemente is targeting 3% organic growth paired with 50 bps of margin expansion for the full year. He reiterated his Overweight rating on IPG and believes the stock can hit $13.
Pandora vs. Apple
The elephant in Pandora's (P) room has got to be Apple (AAPL) at this point. While Pandora is still putting up impressive monthly audience numbers (August's listening hours increased 70% Y/Y, active listeners +48% to 56M), Apple is rumored to be creating a Pandora rival. When a WSJ article about Apple's rumored radio activity hit the Internet last Friday, it sent P's shares down almost 20%.
J.P. Morgan's Doug Anmuth is impressed with Pandora's growth trajectory, in spite of Apple's movements. He wrote, "We recognize Apple's potential entry into Internet radio could remain an overhang in the near term, but we continue to view Pandora as a compelling play on mobile advertising and believe monetization will improve as 1) usage growth remains strong; 2) radio buy-side integration should be in place by fiscal year-end; and 3) Pandora continues to build out its sales force."
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