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Published: April 13, 2012 at 10:35 PM GMT
Last Updated: April 13, 2012 at 10:35 PM GMT
Sometimes, there's nothing quite like s virtual slap-in-the-face from an activist investor to get things moving for an underperforming firm. Dan Loeb posted an amazing chart showing the degradation of Yahoo's (YHOO) core business, going from $30 billion to $2 billion over the last 6 years. Perhaps, YHOO management is (finally) getting the picture as the online media firm fired 2,000 employees earlier in the week. Nicholas Carlson at Business Insider analyzed the move as "part of new CEO Scott Thompson's plans to bring real change to the company." Barclay's analyst Anthony DiClemente applauded the move, which he expects should "lead to significant annualized cost savings and margin expansion." Regardless, the analyst says that while this move is positive, it does nothing to address the issue of restarting growth and innovation. According to one Yahoo insider, Thompson blamed surviving senior executives for the firings and put them on notice they too would be held accountable if the company's fortunes did not turn around. "We think it is more important for YHOO to stave off losses in display to Google and others via innovation around mobile, local, social and video, and to find new ways to monetize its nearly 700M monthly visitors, while continuing to work towards monetizing its Asian assets," wrote DiClemente in wake of the layoffs news.
It seems Pandora Media (P) is singing a different tune, even if the stock hasn't necessarily responded in kind (it's down nearly 20% over the past 6 months). The streaming music company reported March audience metrics and the numbers looked sweet: listening hours increased 88% over last year, active listeners grew 59% to 51M, and its share of U.S. Radio listening expanded to 5.79% (over 3.04% a year ago). These numbers had J.P. Morgan analyst Doug Anmuth humming the praises of Pandora, "[We] continue to view Pandora as a compelling way to play the mobile space, particularly in light of the recent Millennial Media IPO and Spotify's potential capital raise at $4B valuation (per Financial Times)," he wrote in a note sent to investors this week. Barclays analyst Perry Gold doesn't agree with JPM's analysis and initiated coverage of Pandora with an Underweight. He sees 20% downside on the stock here with an $8 target. He doesn't like the fact that revenue growth is decelerating on PC listening and is spooked by the fact that mobile listening isn't being monetized as strongly. With ambitious Street expectations priced in here and content costs rising, he sees a stretched valuation.
Ad agency MDC Partners (MDCA) raised its 2012 guidance this week. The Canadian agency holding company recently acquired Steve Farella's and Audrey Siegel's Targetcast and announced a significant stake in Detroit agency, Doner. MDC boosted its 2012 revenue outlook by $50 million off of strength in new client wins. This positive jump now puts yearly revenue estimates at $1.05 billion - $1.075 billion. MDC also changed its dividend calendar to a semiannual schedule from quarterly. BMO Capital Markets analyst Dan Salmon raised his 2012 EBITDA estimates to $115 million from $105 million and hiked his PT a buck to $19. Said Salmon, "Perhaps overlooked in today's raised outlook (which only reflected acquisitions) is that there is now some implicit cushion in guidance as management also noted that net new business was ~$40 million in 1Q, including Arby's, Applebee's and Target's grocery/food business." He rates the shares Outperform.
Analyst Chris Merwin threw in the towel this week on Netflix (NFLX). The Barclays analyst sees just too many competitive threats on the horizon to warrant a Buy rating — he downgraded the stock this week. Amazon Prime's SVOD (subscription video on demand) has the potential of being carved out as a standalone property, competing squarely with NFLX for subscribers. With costs for content rising and international competitors like LOVEFILM, and Sky's Sky Go, he also lowered 2013 EPS estimates sharply, going from $4.01 to $2.46.
It really hit the fan last week for newly-minted IPO, Groupon (GRPN). The local commerce play couldn't do anything right. First, the company announced on Monday that it had identified a "material weakness" in its internal controls over financial reporting. That sent shares tumbling down 17%. Next, the daily deals firm revised its fourth-quarter results to book lower revenues and a larger loss (the issue has to do with how the firm handles returns). And now, as shareholders clamor for class action suits, it appears the SEC is going to get involved. It's a big mess and the shares have suffered — trading for 44% less it did after its first day of trading. All this overshadows the meeting JP Morgan analyst Doug Anmuth had with deal aggregator Yipit earlier in the week. Yipit's data show that Groupon's sales are shifting towards higher priced deals in North America and repeat merchant business. Anyway, it almost doesn't matter because it's a huge mess and one that casts doubt on the quality of the recent class of Internet/media IPOs. Will it close the IPO window? That remains to be seen but certainly, according to some, sandbagging IPO investors is a sleazy process, even if it's legal.
WebMD (WBMD) announced the preliminary results of its modified Dutch Auction tender offer to acquire upwards of $150 million of common stock. 18M shares were tendered at (or below) $26/share. Analysts expect the repurchase to occur around April 10, 2012 and for WBMD to acquire 5.77M shares (the full amount of the offer). The problem is that because approximately 32% of common stock was tendered at $2, the remaining shares may act as an overhang, according to Barclays analyst Mark May. Nevertheless, the analyst expects a return to a more normalized growth rate in Q2 and believes the current valuation on WBMD shares is still high. He's staying cautious on the firm until "1) there are signs of stabilization in end-market conditions (i.e., pharmaceutical advertising), 2) we have greater confidence in our earnings forecasts, and/or 3) the valuation is more reasonable."
Mark May at Barclays believes that the service at OpenTable is significantly better than what investors are expecting. The restaurant technology stock has sold off almost 15% since 2/15, significantly underperforming the NASDAQ, but May thinks investors have it wrong. His firm's channel checks show "particularly strong" restaurant adds in March, though his search query index (for predicting seated diners) has weakened. While he sees little upside for Q1 results, he doesn't see much downside here either. He's sticking with his Overweight rating and $55 price target.
Bo Nam at J.P. Morgan conducted a reckoning of his estimates of Amazon.com's (AMZN) North American media business. Ending 2011 with around 12.5% share, he believes "there remains room for continued share gains and solid low-mid teens revenue growth going forward." He revised his expectations for Kindle eReaders (18M) and Kindle Fire (15M) for 2012, down from 24M and 20M. He reiterated his Overweight, citing Amazon's smart investments in Kindle and Prime that should pay off through increased product sales and improved customer loyalty.
This week's The BRIDGE looked at 4Q11 performance of the cable industry. All in, the top 12 publicly reported companies closed a net gain of more than 360,000 subscribers. AT&T's U-verse, Verizon FiOS, and DISH Network (DISH) all put in good performances. Wrote ISI's Vijay Jayant and Judah Rifkin, the numbers should "give investor confidence that DISH is on its way to 'righting the ship,' or at least, steering the company from a precipice of continued sub losses."
Dell Computer (DELL) made its third software buy in 4 days this week. Once seen as a hardware company, these moves help position the firm solidly as an end-to-end IT solutions company. Dell purchased Make Technologies (upgrades out-of-date legacy apps), Celerity (similar to Make), and Wyse Technologies (virtual desktops).
The holiday-shortened week didn't have a lot of positive news for media investors and for Groupon shareholders, in particular.
Jack Myers Wall St. Media Business Report is typically published every Friday.
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