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Published: March 16, 2012 at 11:44 AM GMT
Last Updated: July 31, 2013 at 11:44 AM GMT
Earnings season wound down, investors are trying to figure out which way the investment winds will be blowing in 2012 and beyond for the media industry.
Apple (AAPL) always seems to steal the spotlight whenever the consumer electronics firm has something interesting to say. This week was no different as the firm held a conference to introduce its next generation iPad (dubbed just iPad) and Apple TV. Janney's research team wasn't that impressed. In a note to investors, the researchers said that the announcement was in line with the firm's expectations and re-entrenches the firm's dominance against other tablets. The new iPad goes on sale March 16 and caused many analysts to up their forecasts for iPad sales for the rest of the year.
From a tech perspective, the tablet will have a new retina screen, a high-res display that should show a greater resolution than what's standard on HD TV. Plus, it will be outfitted with 4G LTE cellular technology, which offers faster downloads.
In conjunction with International Women's Day, Laura Martin, an analyst at Needham, composed an investment thesis around the economics of women on the Web. Women represent an even larger share of purchases online than they do in the "real" world, spending 10% more time online than men each month. The analyst predicts websites targeting women, especially those that can successfully integrate the social graph, should grow stronger and faster than other ecommerce sites.
Investors looking for an opportunity to get into Pandora (P ) may have just gotten their chance. The Internet music firm was down over 20% on Wednesday based on a surprisingly weak EPS print. But there were some good things on the call. In three months ended January 31st, Pandora reported a 62% increase in active users, a 71% increase in advertising revenue and nearly doubled listening hours. The stock had been up almost 50% YTD before reporting light revenues ($81.3M vs. expectations of $83M) and earnings (-$0.03). In the words of Needham analyst Laura Martin, "P's guidance for the current quarter is anemic".
But that's OK for Martin, as she thinks investors should step up and buy here. P in undergoing a dramatic shift in consumer usage — from the desktop to mobile. If successful, the company will be able to expand RPMs (revenue per thousand listening hours) beyond the $20 (up from $13 just 12 months ago) it's seeing in mobile streaming and approach the $60-$70 it receives on the desktop. Her strong buy call also highlighted the fact that 16 new car models are building P into their dashboards. Martin thinks even more upside can be had off the firm's investment in salespeople to attack the $14B local radio market. "The 3 year upside optionality on this new revenue stream could be enormous," she wrote in a note sent to clients of the firm.
JP Morgan's Doug Anmuth basically concurs and sees further upside down the road. But profitability is now pushed out an additional year and he lowered his PT on the stock from $22 to $17.
Hopefully, the ad market will improve so that ad-supported media businesses can see some more vigorous growth. In Nomura's quarterly Ad Tracker, analyst Michael Nathanson tried to explain exactly why the 4Q of 2011 came in so soft in the advertising industry (up only 1.5% - the slowest growth rate since 2009). The culprits? Tough political ad compares and very weak national cable advertising. Without Internet advertising's impressive 12% growth, things would have looked a lot worse. Nathanson's concern is that he's seeing a massively decelerating ad market which could have strong consequences out into 2013 and beyond.
But he's not entirely convinced that's going to happen. In fact, he's raising this year's growth forecast from 4.5% to 5.5% based on recently revised US online ad spend (doubling previous estimates to 16% growth). No matter what happens, it appears online ad growth is moving into high gear. Goldman Sachs' Drew Borst also believes we see a rebound in 1Q 2012. He thinks the auto industry's rebounding sales will continue to expand auto ads, contributing to ad industry growth after vehicle sales are up 14% during this quarter. The analyst also thinks Disney (DIS) and News Corp (NWSA) are the incremental winners here as the ad industry picks up.
Speaking of Disney, the media company received impressive accolades from Bernstein Research's Todd Juenger who writes that DIS's high capital investment should "produce returns safely exceeding the cost of capital for decades to come." He cites ESPN revenue growth and improving margins as a couple of the drivers set to propel the firm forward in the future.
Takeaways from this month's Barclays report on the state of e commerce include robust traffic growth across all of Amazon's properties. Total U.S. e commerce showed impressive expansion in January, growing 14% yoy. These numbers provide strong read through to AMZN and EBAY, underscoring re-accelerating growth after three months of deceleration. PayPal's in-store payment system which is rolling out at 2000 Home Depots (HD) also advances the EBAY bull thesis.
Is Netflix (NFLX) becoming a cable network? Barclay's Perry Gold thinks it might be. The analyst surfaced recent reports that NFLX was in talks with a couple of networks about possibly including its service as part of cable packages offered to the consumer. If so, that would likely dent margins but Gold likes how that positions the firm longer term. "We believe a partnership with the distributors could help NFLX increase its subscriber base substantially, lower subscriber acquisition costs, and enhance overall company profitability longer-term," he sent out in a missive to investors.
Readers may not find this hard to believe, but Janney's Tony Wible is STILL not buying the NFLX story, instead sticking with his big ol' SELL rating on the firm. The media analyst sees this new move as a sign of weakness as it proves Netflix needs new mechanisms to drive sub growth. While this change of model may ultimately give the content firm a stay of execution, he wrote that it "would force the company to reduce its terminal revenue opportunity by sharing ARPU with MVPDs".
Credit Suisse analyzed the scenario of a buyout of Monster Worldwide (MWW). Analyst John Blackledge believes that MWW has high enough free cash flow, EBITDA margins and low capital requirements to make a fairly interesting LBO candidate, possibly taken private at $10/share (a 33% premium). That said, he believes a strategic asset sale of one of MWW's territories (like Korea) may be a more immediate, impactful reality, unlocking value and driving shares up a possible 11-16%.
The more Mark May, a media analyst at Barclays, looks at Shutterfly's (SFLY) recent purchase of Eastman Kodak's (EK) online assets, the more he sees upside. With some back-of-the-envelope analysis, he believes the deal may be accretive even this year. For next year, the analyst sees $0.20-$0.50 and upside to the stock of 15%. He moved his PT to $46 from $40, where it sits currently.
Well, the Zynga (ZNGA) party had to slow down some time and JP Morgan thinks it's time to go home for a bit. In a note to investors, analyst Bo Nam downgraded the stock to Neutral from Overweight. The stock had been a rocket, soaring up 51% since January. Nam maintains a positive view on the gaming firm but thinks potential upside is already baked in.
Dish Networks (DISH) was dealt a disappointment this week as the FCC approved its request for a transfer of spectrum licenses for its recently-acquired MSS spectrum but turned down the satellite firm's request for waivers for MSS-ATC on the same spectrum. "While Friday's news is a setback, we continue to believe there is enormous value in DISH's spectrum," Stefan Anninger at Credit Suisse responded. He believes the current stock price is too low, calling into question the market's valuation of DISH's entire spectrum (700 MHz and S-band).
Moving over to the agency side of things and MDC Partners (MDCA) ended a disappointing year with disappointing guidance, prompting Deutsche Bank's Matthew Chesler to lower his price target (from $20 to $17). He still believes "it is one of the best ways to invest in the shift to digital, and has strong cash flow potential" but recognizes the need for the firm to be more disciplined. Other agencies fared better if you're reading Michael Nathanson at Nomura Research. He mentions Omnicom (OMC) and Interpublic Groups (IPG) as two firms who enjoyed a good 2011. Both firms saw growth rates upwards of 6%, landing them at the top of the peer group.
Going forward, Nomura's media analyst is raising his price target by $0.50 on IPG (to $12.50) and maintains his $52 target on OMC. "We continue to prefer our Buy-rated media companies that have exposure to resilient national U.S. television advertising and recurring affiliate fee revenues," he wrote.
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