Yahoo, Google, Omnicom, AMC and More Media Wall St. Reports - 7-23-12

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YAHOO

How do you get the media's attention? Hire someone no one thought you could get and then report some really mixed numbers everyone's grown to expect. Oh, and top it off with a pregnancy.

Well, that's all in a week's work for Yahoo (YHOO).

The struggling new media firm had the media captivated this week. It all began with a bombshell announcement: the firm had hired Google employee #20 away from its fiercest competitor and named Marissa Mayer its new CEO (passing up interim CEO, Ross Levinsohn in the process). While Levinsohn's future with the firm remains unclear, Mayer quickly took her stand as Yahoo's top dog by tweeting her pregnancy.

Mayer didn't attend her new employer's quarterly earnings call, but analysts weren't overly excited by what they heard. Revenues and earnings came in mostly inline, with weak display revenues (growth of 1%) and a slight positive in search revenues (up 4%). But everyone seemed to look beyond the quarter's performance and instead, focus on 1) the closing of the Alibaba transaction and potential return of a lot of capital to shareholders and 2) getting the new CEO, Mayer up to speed.

Credit Suisse analyst Spencer Wang put it aptly, "At this stage, Yahoo remains in transition. With the appointment of Marissa Mayer to the CEO post just yesterday, Yahoo provided very little information on how the company's strategy may change and did not provide 3Q12 guidance," he wrote in an earnings review.

"Therefore, we continue to take a wait and see approach, as ongoing weakness in display (which may reflect competitive pressures), challenges with revenue per search, and our concerns about the relevancy of portals give us some pause."

Google

While the focus this week has definitely been on Yahoo, a couple analysts published on the fate of Google in the post-Marissa Mayer era. J.P. Morgan's Doug Anmuth expects a relatively in-line quarter when Google reports in 2Q earnings today after the close. He expects solid core search growth, with mobile and display remaining fast growers. As we've mentioned here repeatedly over the past few months, the Google story is about the calculus of paid click growth, CPC declines and overall top line spending.

This quarter will be the first that the mighty search engine will include numbers from its recent acquisition of Motorola. Spencer Wang at CSFB is positive on the strategic rationale for the deal, as he believes Google gains "significant intellectual property to protect its fast growing Android ecosystem." He's raising his annual revenue estimates into the quarter close by 20% in 2012 and 28% in 2013. He's sticking with his Outperform rating on the shares with a $770 price target.

BGC Partners' Colin Gillis is less enthused with GOOG's short term prospects and chooses instead to focus on the search firm's future. In fact, he penned a Haiku summing up his thesis: Soon it will be time, to become more positive, on shares of Google. Though he's got a HOLD rating on the shares, he believes that the firm employs some of the most talented technologists anywhere and has opportunities to disrupt consumer electronics, cable television, communications and more.

eBay

eBay (EBAY) turned in a good quarter, with earnings modestly besting expectation on strong revenue in Marketplace and PayPal. Payments showed a 27% revenue growth y/y (FX-neutral), as incremental margins were at their highest levels in 2 years — even as PayPal continues to reinvest in the business.

Mobile is a bright spot for the eCommerce firm, providing a tailwind for incremental volume with no pricing or margin erosion. Barclays Perry Gold highlighted the fact that 600,000 people bought an item for the first time ever on eBay during the quarter via mobile. The firm continues to return capital to investors, buying back 9M shares (approx. $355 M) and authorized a new $2 billion repurchase program. This all had the Barclays analyst raising his estimates ($2.72 in 2013 EPS from a previous $2.35) and target price to $44 (from $41).

Netflix

A recent survey conducted by Janney Research shows an uptick in the number of titles in the Netflix (NFLX) streaming library. Analyst Tony Wible explained that the company has added 1,200 US titles in the last 4 months, a 7% increase in total titles. This expansion comes with a cost and the analyst wrote in a research update that he wouldn't be surprised to see an "escalation in content cost."

That said, NFLX told investors it had streamed 1 billion hours in June, strengthening what Wible believes is its upper hand given the lack of competition and growing studio reliance on Netflix distribution. The media analyst is Neutral on the shares and believes the risk-reward is skewing more in favor of the streaming video play. He's got a $67 fair value estimate on NFLX.

Omnicom

Omnicom put up another consistent quarter. The agency reported a 2Q12 EPS of $1.02, beating consensus by a penny. The U.S. business was stronger than expected, putting up organic growth of 5.4%, buoyed by Olympic work that's almost complete. According to BMO Capital Markets' Dan Salmon, the financial services vertical was down 3.1% during the quarter and should further weaken as the BofA losses continue to make a negative impact.

OMC's stable performance amidst global ad market risks has the attention of Deutsche Bank's Matthew Chesler. "We forecast 2-yr EPS growth of 12% p.a. and 17% ROIC, which warrants a >10% premium to the S&P, not the current 5% on consensus estimates," he wrote in a missive to clients of his firm. With such an undemanding valuation, almost $1 billion in net buybacks in 2012, and organic growth approaching 4%, he's reiterating his Buy rating and $52 price target.

Harte-Hanks

Harte-Hanks (HHS) kitchen-sinked an earnings miss pre-announcement. Quarterly earnings should come in light at $0.10-$0.12 (instead of $0.12-$0.14). The company will also take an approximate $150 million goodwill charge and part ways with EVP/President of Direct Marketing Gary Skidmore. BMO's analyst, Dan Salmon believes the weakness is now clearly more than the first quarter's struggle with J.C. Penney. He lowered 2013 EPS to $0.55 from $0.70 and did similarly with 2013 estimates ($0.52 from $0.75). Salmon also lowered his target to $8 (implying a 4.3% dividend yield).

Valuation for new media firms

Pivotal Research's Brian Wieser lifted the kimono this week to describe his firm's process of valuing new media firms. No costs per click analysis for Google or monthly average user figures for Facebook (FB). Instead, he attempts to "assess media budgeting on the basis of what we have observed happens rather than what should happen." The calculus takes into account a brand's total budget, what budget share will go to different media, and the shares of budgets to different "sub-types" of media. All in, Wieser believes Pivotal's approach to forecasting methodologies will be far more accurate than alternative approaches.

AMC Networks

Despite the stock rallying more than 13% over the past month, AMC Networks (AMCX) still trades well below its 52 week high. And Barclays' Anthony DiClemente likes the stock enough here to upgrade the shares to 1-Overweight with a PT going to $48 (from $42). "Despite concerns about rising content licensing costs, we expect tailwinds from affiliate fee re-pricings and a new carriage deal with DISH will more than offset any costs pressures," wrote the analyst in a note to clients.

AMCX has deepened its investment in original programming, which has the carryover benefit of more premium ad inventors. This has led to above market advertising growth, something the Barclays analyst expects will continue into the future. In fact, numbers coming out of Breaking Bad's season premiere point to the return on original programming as it scored its highest rating ever — without DISH. The 5th season chalked up a 1.5 rating and 5 share. The Walking Dead, historically a much more popular series (apparently zombies trump meth lab chemists), is scheduled to return to the network in October.

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