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Published: March 23, 2012 at 08:14 AM GMT
Last Updated: March 23, 2012 at 08:14 AM GMT
Barclays Capital hosted its Internet Connect Conference in Manhattan this week. With 33 companies presenting (including 9 private firms), there was a lot to talk about. Here's a short breakdown of the takeaways from this meet-up.
A lot of investor interest surrounds Internet radio firm, Pandora (P) and the firm's presentation was well-attended. People want to know more about the firm that had less than 6% of the entire radio market, yet commands over 70% of online. As we wrote about it in last week's Wall Street Report, the story is about P's move away from the desktop to mobile streaming. P expects monetization to improve over time for mobile, beginning in 2014, as monetization just keeps pace with growth in listening hours next year.
Groupon (GRPN) management believes there's a deal to be had on its stock. Presenting at the conference, management sounded real bullish on the opportunity to expand international margins and to maintain a pretty constant take rate (around 40%) on the deals the firm markets. There was also a lot of chatter around GRPN's upcoming VIP program which will give power users better access to deals in return for a subscription fee. Groupon emphasized that 25% of North American transactions are occurring over mobile and that over 50% of recent merchants were repeat. Barclays analyst Mark May likes the stock here.
IAC/InterActiveCorp (IACI) was next up and management gave a "feels good" about its near term ability to fix its European dating site's, Meetic, core business and ensure long term drivers of growth. The company spent considerable time comparing its US dating site, Match, to bigger-spending competitor, eHarmony. IACI announced that it will spend more to crack the opportunity in mobile search and build up its OK Cupid brand and monetization efforts. Barclays likes this stock too: $10 in net cash and relatively low valuation means the bank is sticking to its Overweight rating.
Barclays also has an Overweight on Demand Media (DMD) and the analyst team seemed satisfied by the content firm's presentation. Key themes included 1) evolution in content, 2) Demand's positioning to win this evolution, and 3) how the company's domain registrar business is very complementary to core offering. Growth in central properties like eHow (25%) and Livestrong (56%) and Cracked (81%) is bolstered by a significant original content deal the firm inked with YouTube. With the stock trading at a bit over $7, Barclays' Mark May thinks the risk/reward is favorable here for investors.
CBS presented at the Internet Connect conference and emphasized its interest in renewing SVOD deals and licensing even more library content on a non-exclusive basis. Barclays believes this would expand margins and augment revenue growth. CBS revealed that its network actually gets higher CPMs than the broadcast network.
Barclays' Mark May was a busy guy, finding time to meet with LinkedIn (LNKD) this week as well. He reports that the firm believes there is significant opportunity in mobile monetization of the business network, with mobile comprising 15% of UVs. Even if CPMs are just 30% on mobile, that's still a green field opportunity. LNKD is also investing in a direct sales force to bolster its premium offering. The firm also described its efforts in expanding the reach and price point of its Recruiter solutions.
Tony Wible at Janney reiterated his Buy rating and $18.50 fair value target on TIVO (TIVO) this week. He believes that as competition around IPTV heats up, TIVO will reap an increased demand for its technology. The claims constructions also came in this week from the firm's upcoming litigation against Verizon and apparently, heavily favor TIVO. With this news, Wible believes a settlement becomes a more likely outcome and could be about $225 million (or almost 20% of TIVO's market cap). He doesn't think this settlement is baked into the stock here.
This IPTV race is also shifting balances of power in the content industry. In a different note to investors sent this week, Janney's Wible believes content producers are buying more content than they can afford from Netflix (NFLX). "In essence, we believe we are nearing a tipping point where distribution is gaining an edge over content," the media analyst wrote.
In this light, the analyst believes that major ad networks are at risk of losing $9/home per month and aren't able to come even close to recouping it via digital licensing deals. Wible likes Disney (DIS) because its park revenues and sports programming help insulate it from the powerful dynamics facing IPTV right now. He doesn't like Time Warner (TWX), whose TNT/TBS networks are very exposed to the IPTV threat.
Speaking of DIS, Bo Tang at Barclays toned down his expectations on the stock a bit (to $2.98 in EPS from $3.00 for 2012) on disappointing opening weekend numbers for the studio's John Carter. The analyst now expects that the much-anticipated film, which cost an estimated $250M to produce and another $100M to market, will "only" gross $85M in US box office -- clearly, not the franchise that Disney execs were hopeful the film could become. Janney's Wible is less certain that the firm will suffer a large impairment on the disappointing film. He's been tracking Disney films since 2005 and his research shows that the Street may be too bearish on the downside of John Carter.
Investors didn't applaud AMC Networks' (AMCX) quarterly performance. The network that's bringing the Walking Dead to millions of viewers reported revenues that came in slightly higher than expected but margins weren't good. The firm's 15% ad growth was impressive compared to what's going on in the rest of the industry but the growth was still less than Barclays Anthony DiClemente predicted. He brought down his 1Q EPS estimate to $0.44 (from $0.45) but raised his PT $6 to $40.
MDC Partners (MDCA) saw its stock drop 6% on Thursday when it had its credit rating downgraded by S&P. BMO Capital Markets analyst Daniel Salmon believes the downgrade was based on old news (based on past earnings) and instead, investors should focus on a couple of good pieces of news the firm announced recently. The agency announced a partnership with Brazil's Peralta to expand into South America and also won Target's grocery and food business. The analyst alluded to the "upward tension" in his 2012 revenue outlook for the firm but left his estimates in place. Salmon has an Outperform on the stock.
BMO also hosted its NYC Ad Agency Bus Tour this week and had a few insights from the agencies to share with investors. IPG (IPG) credits performance-based pricing with sustaining its competitive margins. WPP (WPPGY) said that its OgilvyOne now accounts for around 60% of revenues through the Ogilvy network. When optimizing clients' digital budgets across earned and paid media, the agency can capture 35-50% of spend. Omnicom's (OMC) digital data and analytics group, Annalect is being tapped by Omnicom's media planning and buying clients, driving headcount increases of 50% this year. Publicis (PUBGY) sees Social TV blooming as Big Fuel partners with Starcom and other Publicis agencies, while the firm's recent launch, CRM365 has a competitive communications product for mid-level brands.
If MDCA is benefiting from the move to digital, that's also happening across the agency business in general, according to a new report released this week by Pivotal Research's Brian Wieser. Pivotal's research shows that during 2011, agencies were growing faster than advertising due in no small part to the strength in digital. The top 5 agencies grew over 6% organically during 2011, well ahead of ad revenues. Digital advertising grew from 10% to 18% of all US advertising after 2007 and this is benefiting the agencies. Wieser believes agencies continue to grow with digital and outpace other macroeconomic metrics.
To grow digital, agencies don't have to look beyond what Procter and Gamble (PG) is doing with its online spend. Its new approach focuses less on just messaging and more on creating 1-to-1 relationships with online customers and helping them solve problems and improve their lives. Mobile plays a big role in P&G's strategy. "Technology will mean that people will increasingly expect brands to understand their unique needs and deliver," global marketing and brand building head, Marc Pritchard said recently. Successful agencies will want to follow PG's lead on this.
In terms of TV ratings rundowns, Barclays analyst Chris Merwin highlights that Discovery Communications (DISCA) is extending its lead in the 1Q ratings race. Ratings surged for DISCA on average of 23% across the company's various cable networks. Oprah's OWN was up almost 80% as Oprah had an exclusive interview with Whitney Houston's family. Animal Planet's Finding Bigfoot scored 1.53M viewers in the season finale. Viacom's (VIAB) Nick ratings reached a new low, as the network's viewership has declined 39% y/y. Nick's 780,000 viewers is the lowest rating since 2009 (as far back as Barclays has been monitoring).
ISI initiated coverage of Liberty Global (LBTYA) with a "hold" rating and a price target of $56. Analyst Vijay Jayant sees revenue and OCF growth over the next four years in the mid-single digit range. Wible at Janney was out on Liberty Media (LMCA), lowering his PT to $105 (from $113). He's concerned that the firm's Starz Media group will continue to see higher programming costs in the near future. Wible notes that LMCA's 40% stake in Sirius XM Radio (SIRI) has soared in value, up 30% YTD alone.
Goldman's Brian Karimzad wasn't playing games when he hosted Electronic Arts (EA) CEO, Ken Barker for some meetings. He wanted to better understand the firm's adjustment to 4Q guidance. Off the back of a unnamed distressed retailer (believed to be Game Group), the firm clarified that the impact would imply $0.84 in FY12 EPS compared to a consensus $0.86. Also, the gaming analyst had the chance to learn that EA's Star Wars games are converting at about a 75% rate. With stable, active users closing in on 2 million, Karimzad sees this title acting as a nice tailwind into 2012 and beyond.
Is Apple (AAPL) "Siri"-ous about search? That's a question Perry Gold of Barclays posited in a recent research piece. Apple is aggressively marketing Siri through TV spots and the natural language voice search is becoming quite popular with users. That said, Gold found that because Siri isn't really a search engine nor does Apple intend to develop algorithms to make it so. Hence, Google (GOOG) shouldn't be threatened by Siri's gaining popularity.
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