There comes a time in a company's lifetime when insurmountable competitive forces and unfavorable industry dynamics draws the business model into the decline phase. Yahoo! has approached that moment.
In our last write-up on Yahoo! seen here, we outlined several steps management and the board should take to increase shareholder value culminating into the inevitable final step - a sale.
At the time we mentioned Microsoft or traditional media conglomerate companies but now we think a foreign company makes sense, with Baidu being the most logical acquirer.
Baidu has bigger aspirations than just China. If it wants to challenge Google then buying Yahoo! makes sense.
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Thursday, June 23, 2011
Sunday, May 1, 2011
Valuevision Media: Our Top Small Cap Media Pick.
ValueVision Media (VVTV) is set to report earnings on May 11, 2011. Research firm Piper Jaffray is calling for revenues of $146.7 million, Adjusted EBITDA of ($0.962), and GAAP EPS of ($0.73). We think those estimates are easily beatable and the shares are likely to rally post the earnings.
Friday’s favorable decision from Liberty Interactive regarding the bondholder lawsuit should be viewed as a catalyst for the TV Shopping industry, and VVTV in particular, because it could mean that QVC and HSN would be cleared to merge in the future. Comcast in our view, would not sit idle and let QVC and HSN become overbearing as a combined competitor, and could invest in VVTV to make it more competitive. We think that would ultimately lead to a full acquisition of VVTV by Comcast.
In addition, Comcast’s declaration last week that it would cross promote its assets is also favorable for VVTV.
We have pushed the acquisition thesis on VVTV before, seen here, and thinks it makes sense for Comcast, but also for a company like Amazon.com, who could stand to both increase sales and margins if it had a TV distribution outlet. The margins on a multichannel shopping purchase is higher than that of a pure online shopping purchase or that of a pure TV shopping purchase. A TV channel would allow Amazon.com in our view to ultimately get to the double digit operating margin goal.
As a standalone business we are calculating a fair value for VVTV shares of around $8 based on a 8.5x multiple to fiscal 2013 consensus EBITDA of $50 million.
And as for the Wall Street Journal article about the insider share sales, which we view as fair to bring up, we note that the article did not mention that the CEO had purchased 1 million shares in the open market in 2009. From a pure corporate governance perspective we do not like one-time insider shares sales because of the signaling hypothesis. But be that it may, the business is fundamentally strong and has great momentum, so we are willing to overlook that at this time, and look to the upside potential from owning the shares.
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Friday’s favorable decision from Liberty Interactive regarding the bondholder lawsuit should be viewed as a catalyst for the TV Shopping industry, and VVTV in particular, because it could mean that QVC and HSN would be cleared to merge in the future. Comcast in our view, would not sit idle and let QVC and HSN become overbearing as a combined competitor, and could invest in VVTV to make it more competitive. We think that would ultimately lead to a full acquisition of VVTV by Comcast.
In addition, Comcast’s declaration last week that it would cross promote its assets is also favorable for VVTV.
We have pushed the acquisition thesis on VVTV before, seen here, and thinks it makes sense for Comcast, but also for a company like Amazon.com, who could stand to both increase sales and margins if it had a TV distribution outlet. The margins on a multichannel shopping purchase is higher than that of a pure online shopping purchase or that of a pure TV shopping purchase. A TV channel would allow Amazon.com in our view to ultimately get to the double digit operating margin goal.
As a standalone business we are calculating a fair value for VVTV shares of around $8 based on a 8.5x multiple to fiscal 2013 consensus EBITDA of $50 million.
And as for the Wall Street Journal article about the insider share sales, which we view as fair to bring up, we note that the article did not mention that the CEO had purchased 1 million shares in the open market in 2009. From a pure corporate governance perspective we do not like one-time insider shares sales because of the signaling hypothesis. But be that it may, the business is fundamentally strong and has great momentum, so we are willing to overlook that at this time, and look to the upside potential from owning the shares.
Read More!
Saturday, February 5, 2011
AOL Post earnings comments
AOL reported 4Q10 results this past week of $596MM in revenue above the Street and Adjusted EBITDA of $149MM also better than the Street.O&O Domestic Display Revenue was $140MM (up 24% Q/Q). Comments from the call follow from AOL IR:
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DISPLAY
Now, midway through Q1 2011, our salesforce is operating in a structure vertically aligned by industry, pricing has improved and we are ramping up sales of our new ad format, all of which bodes well for 2011 display revenue. For Q1, we are making progress in closing the gap to achieving year-over-year growth, but keep in mind that we continue to comp against a quarter last year when we were still reducing the amount of AOL property inventory sold through the network. Q1 will be the last quarter when we have this comp issue.
SEARCH
Our new 5-year contract with Google began on January 1 and over the next 60 days you will see the phase in of the new product, but while we expect the product to be superior to the current offering, it is too premature to say what if any impact this will have on revenue. I think the best way to approach this for modeling purposes is to continue to model query declines in parallel to the decline in the access subscribers although the year-over-year rate of decline should improve somewhat as we lap our de-emphasis of the contextual products.
THIRD PARTY NETWORK
In the Third Party Network, absent the impacts of our own initiatives, revenue declined because of increased competition for network advertiser dollars. We are focused on improving performance here, especially given the quality of the inventory and technology embedded in Ad.com. We have taken steps to continue to educate clients on the realities of our capabilities in the space. We expect to see improved results going forward.
SUBSCRIPTION
Excluding this benefit, subscription revenue declined 25%, which is similar to what we saw throughout 2010. Subscriber churn dropped to 2.3% in Q4 which again is the lowest level it has been in a decade and compares to 3% in the fourth quarter last year and 2.6% in Q3 2010. Meanwhile, ARPU continued to hold steady, down 2% year-over-year, but flat to last two quarters. Looking forward we continue to expect the same trends to persist.
PATCH
On Patch, as you know we have been executing on an aggressive role out plan and in Q4 we entered over 500 new towns to end the year in 775 towns. This faster than anticipated rollout put our run rate expense for Patch at approximately $40 million at the end of the quarter which is higher than the $30 million we talked about on our last call and that incremental expense is likely to flow directly to the bottom line in Q1 and Q2. However, we have begun directing more sales attention to Patch and as a result we expect that during 2011 a number of Patchs will begin to contribute to AOL’s profitability.
EXPENSES
I want to spend just a moment talking about the way we have structured recent acquisitions and how they impact our expenses. A large determinant for us in any acquisition we make is talent and whether we can acquire great technology, brands and audience, while also retaining the talent that created them. As such, we structured our deals whereby the employees of the acquired companies commit to deferring a portion of their proceeds from the purchase price over multiple years subject to ongoing employment. From an accounting standpoint, the deferred payments are treated as compensation expense (a portion of which are tax deductible) and we expect to have approximately $35 million of accounting expenses related to those arrangements in 2011. From a cash perspective, we expect to pay out approximately $12 million related to these transactions in 2011 … One final note on the goviral acquisition is that we have a large NOL position in Europe that we expect to take advantage of for this business which is already cash flow positive.
So for 2011, as you model out the year you should take into consideration the run rate increase in Patch expenses as compared to the approximate $75 million we spent in 2010, an approximate $10 million increase in equity-based compensation expense; an approximate $70 million in expenses related to recent acquisitions which includes an approximate $35 million increase in deferred compensation related to those acquisitions, partially offset by a mid-single digit decline in all other expenses. Most of this you have already heard before, but what is new here is that we previously told you deferred consideration related to recent acquisitions in 2011 would be $15 million and it is now $35 million following the acquisitions of Pictela, About.me and goviral. Additionally, stock based comp will increase $10 million and the accelerated Patch rollout increases the losses there by $25 million for the year.
Turning now to cash, AOL continues to generate substantial amounts of cash each quarter. We generated $70 million of free cash flow for the quarter. Keep in mind that Q4 tends to be a user of free cash from a working capital perspective given the timing of receivable collections. Remember, we continue to benefit from a meaningful tax shield and while we utilized some of this asset in 2010, we still have approximately $160 million net cash savings left to go. Following the goviral acquisition we have approximately $725 million of cash on hand which compares very well with the approximate $150 million we started 2010 with.
4 additional items relevant to the quarter and your models as you think about 2011 …
o First, as you think about earnings for Q1 remember to take into account the increase in expenses I just spoke about which will result in more of a drop from Q4 to Q1 earnings this year than in prior years. For the full year, year-over-year declines in Q1 and Q2 will be the steepest with year-over-year declines moderating in the back half of the year due primarily to increased display revenue growth.
o Second, in addition to these expenses, Q1 cash flow will be impacted by approximately $65 million in bonus payments this year versus last year when only $37 million was paid out in the same time period, because half of the 2009 bonus payment was actually paid out in 2009.
o Third, we continue to manage our portfolio smartly, adding assets which facilitate a quicker execution of our strategy more quickly, while unlocking value by shedding non-core assets when practical. Over the course of the year we unlocked over $650 million in value through dispositions allowing us to fund our acquisitions while simultaneously building cash on the balance sheet. In Q4, we made two acquisitions for $31 million net of cash acquired and $12 million of deferred payments. Earlier this week we announced the acquisition of goviral for $74 million and $23 million of deferred payments. Meanwhile, we exited an investment in Brightcove, adding $17 million back to the cash position and recall that we closed the sale of part of our Dulles campus in Q4.
o And finally, in terms of CAPEX we spent just south of $100 million in 2010. We manage CAPEX very carefully and in 2011 we expect to spend a similar amount to 2010. Also, for the purposes of EPS, our depreciation and amortization expense for the year will run at approximately 2 times the rate of our CAPEX amount and while we are not currently a cash taxpayer, we will record book tax expense for income statement purposes.
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http://www.5linx.net/TMTADVISORS/products.asp
DISPLAY
Now, midway through Q1 2011, our salesforce is operating in a structure vertically aligned by industry, pricing has improved and we are ramping up sales of our new ad format, all of which bodes well for 2011 display revenue. For Q1, we are making progress in closing the gap to achieving year-over-year growth, but keep in mind that we continue to comp against a quarter last year when we were still reducing the amount of AOL property inventory sold through the network. Q1 will be the last quarter when we have this comp issue.
SEARCH
Our new 5-year contract with Google began on January 1 and over the next 60 days you will see the phase in of the new product, but while we expect the product to be superior to the current offering, it is too premature to say what if any impact this will have on revenue. I think the best way to approach this for modeling purposes is to continue to model query declines in parallel to the decline in the access subscribers although the year-over-year rate of decline should improve somewhat as we lap our de-emphasis of the contextual products.
THIRD PARTY NETWORK
In the Third Party Network, absent the impacts of our own initiatives, revenue declined because of increased competition for network advertiser dollars. We are focused on improving performance here, especially given the quality of the inventory and technology embedded in Ad.com. We have taken steps to continue to educate clients on the realities of our capabilities in the space. We expect to see improved results going forward.
SUBSCRIPTION
Excluding this benefit, subscription revenue declined 25%, which is similar to what we saw throughout 2010. Subscriber churn dropped to 2.3% in Q4 which again is the lowest level it has been in a decade and compares to 3% in the fourth quarter last year and 2.6% in Q3 2010. Meanwhile, ARPU continued to hold steady, down 2% year-over-year, but flat to last two quarters. Looking forward we continue to expect the same trends to persist.
PATCH
On Patch, as you know we have been executing on an aggressive role out plan and in Q4 we entered over 500 new towns to end the year in 775 towns. This faster than anticipated rollout put our run rate expense for Patch at approximately $40 million at the end of the quarter which is higher than the $30 million we talked about on our last call and that incremental expense is likely to flow directly to the bottom line in Q1 and Q2. However, we have begun directing more sales attention to Patch and as a result we expect that during 2011 a number of Patchs will begin to contribute to AOL’s profitability.
EXPENSES
I want to spend just a moment talking about the way we have structured recent acquisitions and how they impact our expenses. A large determinant for us in any acquisition we make is talent and whether we can acquire great technology, brands and audience, while also retaining the talent that created them. As such, we structured our deals whereby the employees of the acquired companies commit to deferring a portion of their proceeds from the purchase price over multiple years subject to ongoing employment. From an accounting standpoint, the deferred payments are treated as compensation expense (a portion of which are tax deductible) and we expect to have approximately $35 million of accounting expenses related to those arrangements in 2011. From a cash perspective, we expect to pay out approximately $12 million related to these transactions in 2011 … One final note on the goviral acquisition is that we have a large NOL position in Europe that we expect to take advantage of for this business which is already cash flow positive.
So for 2011, as you model out the year you should take into consideration the run rate increase in Patch expenses as compared to the approximate $75 million we spent in 2010, an approximate $10 million increase in equity-based compensation expense; an approximate $70 million in expenses related to recent acquisitions which includes an approximate $35 million increase in deferred compensation related to those acquisitions, partially offset by a mid-single digit decline in all other expenses. Most of this you have already heard before, but what is new here is that we previously told you deferred consideration related to recent acquisitions in 2011 would be $15 million and it is now $35 million following the acquisitions of Pictela, About.me and goviral. Additionally, stock based comp will increase $10 million and the accelerated Patch rollout increases the losses there by $25 million for the year.
Turning now to cash, AOL continues to generate substantial amounts of cash each quarter. We generated $70 million of free cash flow for the quarter. Keep in mind that Q4 tends to be a user of free cash from a working capital perspective given the timing of receivable collections. Remember, we continue to benefit from a meaningful tax shield and while we utilized some of this asset in 2010, we still have approximately $160 million net cash savings left to go. Following the goviral acquisition we have approximately $725 million of cash on hand which compares very well with the approximate $150 million we started 2010 with.
4 additional items relevant to the quarter and your models as you think about 2011 …
o First, as you think about earnings for Q1 remember to take into account the increase in expenses I just spoke about which will result in more of a drop from Q4 to Q1 earnings this year than in prior years. For the full year, year-over-year declines in Q1 and Q2 will be the steepest with year-over-year declines moderating in the back half of the year due primarily to increased display revenue growth.
o Second, in addition to these expenses, Q1 cash flow will be impacted by approximately $65 million in bonus payments this year versus last year when only $37 million was paid out in the same time period, because half of the 2009 bonus payment was actually paid out in 2009.
o Third, we continue to manage our portfolio smartly, adding assets which facilitate a quicker execution of our strategy more quickly, while unlocking value by shedding non-core assets when practical. Over the course of the year we unlocked over $650 million in value through dispositions allowing us to fund our acquisitions while simultaneously building cash on the balance sheet. In Q4, we made two acquisitions for $31 million net of cash acquired and $12 million of deferred payments. Earlier this week we announced the acquisition of goviral for $74 million and $23 million of deferred payments. Meanwhile, we exited an investment in Brightcove, adding $17 million back to the cash position and recall that we closed the sale of part of our Dulles campus in Q4.
o And finally, in terms of CAPEX we spent just south of $100 million in 2010. We manage CAPEX very carefully and in 2011 we expect to spend a similar amount to 2010. Also, for the purposes of EPS, our depreciation and amortization expense for the year will run at approximately 2 times the rate of our CAPEX amount and while we are not currently a cash taxpayer, we will record book tax expense for income statement purposes.
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Saturday, January 29, 2011
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Thursday, January 27, 2011
R&D Tax Credit Could Boost Companies EPS
Netflix's EPS benefited by 3 cents due to the R&D tax credit as a result of the passage of the tax bill in December. Most companies are likely to take the credit in the fourth quarter leading to upside to EPS estimates. Most Street estimates do not reflect that credit.
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Microsoft Earnings Preview
Microsoft is scheduled to report earnings this evening. The Street is expecting revenues of $19.17 billion and EPS of $0.68
The March quarter is estimated to produce $16.06 billion in revenues and EPS of $0.56. This suggest a cautious tone as the historical revenue decline have averaged 10% versus the 16% decline implied by the Street guidance. Street sentiment is positive on the stock with several analysts believing that estimates are too low and need to come up.
The stock's valuation is attractive, free cash flow trends are favorable, and the balance sheet is bullet proof. However, the shares have largely underperformed the market over the past year. Investors will be looking for signs within the quarter and the call that would cause multiples to expand.
Key for the call would be:
1. Tablet cannibalization
2. Cloud offerings and traction
3. Kinect sales
4. Usage of the balance sheet
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The March quarter is estimated to produce $16.06 billion in revenues and EPS of $0.56. This suggest a cautious tone as the historical revenue decline have averaged 10% versus the 16% decline implied by the Street guidance. Street sentiment is positive on the stock with several analysts believing that estimates are too low and need to come up.
The stock's valuation is attractive, free cash flow trends are favorable, and the balance sheet is bullet proof. However, the shares have largely underperformed the market over the past year. Investors will be looking for signs within the quarter and the call that would cause multiples to expand.
Key for the call would be:
1. Tablet cannibalization
2. Cloud offerings and traction
3. Kinect sales
4. Usage of the balance sheet
Read More!
Friday, January 21, 2011
Google CEO to Step Down in 2009
We hate to brag but we did see this coming and wrote about it in Google CEO to Step Down in 2009, except that we were a bit early. It was clear to us then that Schmidt had political aspirations and we continue to believe that he does. The spat with the founders over China may have been the tipping point.
Page: From Nerd to Jack Welch? Probably not. In the times we have been near him, he did not appear to be CEO material. But that could change and people do evolve and grow so we are willing to give him the benefit of the doubt. Read More!
Page: From Nerd to Jack Welch? Probably not. In the times we have been near him, he did not appear to be CEO material. But that could change and people do evolve and grow so we are willing to give him the benefit of the doubt. Read More!
Tuesday, January 18, 2011
Doughtery and Co. Defends VVTV, ups price target
The firm does so after VVTV shares declined 6% and following a series of management meetings.
• VVTV’s strategy is to deliver great content across multiple categories to drive customer growth. Improved sourcing and merchandising decisions are driving higher margins and distribution costs are deflating. Gross margin dollar growth is leveraging VVTV’s fixed operating expenses, producing an EBITDA inflection point.
• The “going concern” trade in VVTV shares has occurred. The company’s previously fragile balance sheet has been strengthened with a term note and equity offering. Positive EBITDA in the October quarter further mitigated going concern risks.
• With breakeven EBITDA just recently achieved, investors are evaluating VVTV shares based on the company’s long-term potential to significantly expand its customer base and leverage EBITDA margins to the 8%+ range. While EBITDA margins of this magnitude are several years away, January results will be a critical measuring stick along the path and we believe fundamentals have accelerated.
.. Our revenue estimates for 2011-2013 reflect annual growth of 11.0%, which is based on 3% growth in households and 8% growth in revenue per household. EBITDA margins of 2.1% in 2011, 4.3% in 2012, and 6.0% in 2013 are based on gross margins of 35.5% and leverage in fixed cable distribution costs from ~18% of revenues in 2010 to ~13% of revenues in 2013.
• We are raising our price target from $5 to $8. As VVTV is in the early stages of a turnaround, we must look out to 2013 to assess the value of the business based on its potential to produce EBITDA upon successful turnaround execution. Our $8 price target reflects 8.5x EV to 2013E EBITDA, versus 5.7x for HSNI and 6.4x for LINTA. We believe VVTV can earn a premium multiple due to our projected EBITDA CAGR from 2011-2013 of 89% versus the 3-year EBITDA CAGR of 9.5% at HSNI and 8.7% at LINTA.
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• VVTV’s strategy is to deliver great content across multiple categories to drive customer growth. Improved sourcing and merchandising decisions are driving higher margins and distribution costs are deflating. Gross margin dollar growth is leveraging VVTV’s fixed operating expenses, producing an EBITDA inflection point.
• The “going concern” trade in VVTV shares has occurred. The company’s previously fragile balance sheet has been strengthened with a term note and equity offering. Positive EBITDA in the October quarter further mitigated going concern risks.
• With breakeven EBITDA just recently achieved, investors are evaluating VVTV shares based on the company’s long-term potential to significantly expand its customer base and leverage EBITDA margins to the 8%+ range. While EBITDA margins of this magnitude are several years away, January results will be a critical measuring stick along the path and we believe fundamentals have accelerated.
.. Our revenue estimates for 2011-2013 reflect annual growth of 11.0%, which is based on 3% growth in households and 8% growth in revenue per household. EBITDA margins of 2.1% in 2011, 4.3% in 2012, and 6.0% in 2013 are based on gross margins of 35.5% and leverage in fixed cable distribution costs from ~18% of revenues in 2010 to ~13% of revenues in 2013.
• We are raising our price target from $5 to $8. As VVTV is in the early stages of a turnaround, we must look out to 2013 to assess the value of the business based on its potential to produce EBITDA upon successful turnaround execution. Our $8 price target reflects 8.5x EV to 2013E EBITDA, versus 5.7x for HSNI and 6.4x for LINTA. We believe VVTV can earn a premium multiple due to our projected EBITDA CAGR from 2011-2013 of 89% versus the 3-year EBITDA CAGR of 9.5% at HSNI and 8.7% at LINTA.
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Bernstein sees Apple weakness as buying opportunity
The firm believes that the 6% decline in the stock in reaction to the news from Steve jobs is a buying opportunity. We agree. Plus earnings must be stellar for them to make this announcement in front of it. We are hoping he makes a speedy recovery.
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Monday, January 17, 2011
Our Mosaic Theory on our VVTV Acquisition Thesis
We have been getting lots of push back about our ValueVision Media (VVTV) acquisition thesis with some stating that we are being sensational, see that write-up here. [Our other analysis on the company was never questioned.] Thus, we decided to expand on our thinking. So here goes and note that our thesis is based purely on mosaic theory.
Reasons why we believe VVTV is a take-out candidate:
1. Management guidance that the business will double. Management believes that revenues can double to $1 billion in five years and EBITDA margins can reach upwards of 12% from near 1% today, matching that of the second largest TV shopping company in the industry. This is textbook and we have seen this before. Not to suggest that management is being disingenuous; in fact, we believe that the management team is very strong, with a 10% ownership stake to boot, but most companies dressing themselves up for an acquisition tend to provide “bold longer-term” guidance rather than short-term guidance. It is anyone’s guess what happens to the world in five years but management must see something in their business trajectory that leads them to believe that their business can double. Nonetheless, for them to come forth with this guidance they must want the company to look good to potential acquirers.
2. The number 1 and 2 players in the industry could merge. There are three major TV Shopping companies in the U.S. (a few smaller category niche channels exists) and the no.1 and no.2 companies have indicated that they could merge in the future, after the spin-off is completed. VVTV knows that they will need a stronger partner to compete effectively when those companies merge and could be open to an acquisition.
3. Word is that VVTV management won’t oppose the merger on anti-trust grounds. Why that would be confused us at first even though an opposition won’t pass muster because TV Shopping is not a broadly defined sector but falls under general retail. Nevertheless, an opposition can force the government to impose concessions that could benefit VVTV. Hence, the thought management won’t oppose must mean that they see themselves as part of another bigger retail platform like Amazon.com in the future and decided it is not worth the effort.
4. They have been down this road before. 39 companies looked at VVTV’s books during the height of the recession but walked away. VVTV was on the verge of bankruptcy and its stock price at 20 cents reflected that scenario. We believe they walked away primarily due to the economic climate at that time. In fact, we cannot recall an acquisition taking place in media and tech during 2008. Now that the economy has improved and VVTV has regained its mojo we think several of those companies, including Amazon.com, will return to take another look at VVTV’s books.
A note on valuation. On 2013 consensus numbers, VVTV is trading at 5.1x EBITDA vs. HSNI trading at 5.5x and LINTA trading at 5.8x. So the stock is trading at a discount to its peers and continues to do so more meaningfully for the following years. We chose 2013 because at that point VVTV should fully realize the fruits of its turnaround strategy from a margin perspective.
Near-term catalysts to watch:
1. Approval of the Comcast-NBCU merger - in about two weeks according to the Wall Street Journal.
2. Results from HSNI and LINTA - within the next few weeks.
There you have it. Comments welcomed at mediatechanalyst@gmail.com
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Reasons why we believe VVTV is a take-out candidate:
1. Management guidance that the business will double. Management believes that revenues can double to $1 billion in five years and EBITDA margins can reach upwards of 12% from near 1% today, matching that of the second largest TV shopping company in the industry. This is textbook and we have seen this before. Not to suggest that management is being disingenuous; in fact, we believe that the management team is very strong, with a 10% ownership stake to boot, but most companies dressing themselves up for an acquisition tend to provide “bold longer-term” guidance rather than short-term guidance. It is anyone’s guess what happens to the world in five years but management must see something in their business trajectory that leads them to believe that their business can double. Nonetheless, for them to come forth with this guidance they must want the company to look good to potential acquirers.
2. The number 1 and 2 players in the industry could merge. There are three major TV Shopping companies in the U.S. (a few smaller category niche channels exists) and the no.1 and no.2 companies have indicated that they could merge in the future, after the spin-off is completed. VVTV knows that they will need a stronger partner to compete effectively when those companies merge and could be open to an acquisition.
3. Word is that VVTV management won’t oppose the merger on anti-trust grounds. Why that would be confused us at first even though an opposition won’t pass muster because TV Shopping is not a broadly defined sector but falls under general retail. Nevertheless, an opposition can force the government to impose concessions that could benefit VVTV. Hence, the thought management won’t oppose must mean that they see themselves as part of another bigger retail platform like Amazon.com in the future and decided it is not worth the effort.
4. They have been down this road before. 39 companies looked at VVTV’s books during the height of the recession but walked away. VVTV was on the verge of bankruptcy and its stock price at 20 cents reflected that scenario. We believe they walked away primarily due to the economic climate at that time. In fact, we cannot recall an acquisition taking place in media and tech during 2008. Now that the economy has improved and VVTV has regained its mojo we think several of those companies, including Amazon.com, will return to take another look at VVTV’s books.
A note on valuation. On 2013 consensus numbers, VVTV is trading at 5.1x EBITDA vs. HSNI trading at 5.5x and LINTA trading at 5.8x. So the stock is trading at a discount to its peers and continues to do so more meaningfully for the following years. We chose 2013 because at that point VVTV should fully realize the fruits of its turnaround strategy from a margin perspective.
Near-term catalysts to watch:
1. Approval of the Comcast-NBCU merger - in about two weeks according to the Wall Street Journal.
2. Results from HSNI and LINTA - within the next few weeks.
There you have it. Comments welcomed at mediatechanalyst@gmail.com
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Sunday, January 16, 2011
NewsCorp to Sell MySpace
NewsCorp finally admitted today that it is seeking to sell MySpace becoming the second major media company after AOL to admit that they cannot effectively manage new media companies. We stated in a previous write-up that Google should look to buy MySpace, seen here, but we now think maybe FaceBook should look to buy MySpace. Both companies make good suitors to us.
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Monday, December 27, 2010
Avalon (AVL) - A Clean Tech, rare earth metal stock worth considering
We are stepping away for a moment from our main coverage of tech, media, and telecom stocks to highlight, Avalon Rare Metals (AVL), a Clean Tech stock we believe has enormous potential. If you are hesitant to buy gold and silver because of the hype surrounding the precious metals this year, then this rare earth metal stock is worth considering. This will also start our coverage of Clean Tech stocks.
According to a write-up by Beacon Equity Research, Avalon Rare Metals is Canadian-based mineral exploration and development company that focuses on the rare metals and minerals, including the rare earth elements (REE). The primary asset of Avalon is the 100%-owned advanced development stage project, Nechalacho Rare Earth Element Deposit located in the Northwest Territories, and has one of the highest qualities undeveloped REE deposits in the world. REE are used in the production of clean tech like hybird and electronic vehicles, energy efficient lighting, wind turbines, and other uses in the electronic industries.
Effective December 22, 2010, the Issuer’s common shares began trading on the NYSE Amex exchange under the symbol AVL.
The shares of REE stocks received a boost recently because of China's decision to limit exports of rare earth elements, driving up world prices for these metals. China's decision to increase interest rates over the weekend should further boosts the value of these elements.
. Read More!
According to a write-up by Beacon Equity Research, Avalon Rare Metals is Canadian-based mineral exploration and development company that focuses on the rare metals and minerals, including the rare earth elements (REE). The primary asset of Avalon is the 100%-owned advanced development stage project, Nechalacho Rare Earth Element Deposit located in the Northwest Territories, and has one of the highest qualities undeveloped REE deposits in the world. REE are used in the production of clean tech like hybird and electronic vehicles, energy efficient lighting, wind turbines, and other uses in the electronic industries.
Effective December 22, 2010, the Issuer’s common shares began trading on the NYSE Amex exchange under the symbol AVL.
The shares of REE stocks received a boost recently because of China's decision to limit exports of rare earth elements, driving up world prices for these metals. China's decision to increase interest rates over the weekend should further boosts the value of these elements.
. Read More!
Friday, November 19, 2010
Buying opportunity on Valuevision shares
ValueVision posted a great quarter with sales growth that bested its two competitors QVC and HSN and posted its first EBITDA positive quarter in over two years. The shares round tripped, first spiking 7% but ending down 8% for the day, due, we believe, to some profit taking.
This presents a buying opportunity for the shares, which are worth over $7 by the end of 2011, according to our math. See our valuation here.
From the call, it became clear that Comcast should likely take hold of the network and build it into a competitor to the other two networks. Thus the future looks bright for the company.
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This presents a buying opportunity for the shares, which are worth over $7 by the end of 2011, according to our math. See our valuation here.
From the call, it became clear that Comcast should likely take hold of the network and build it into a competitor to the other two networks. Thus the future looks bright for the company.
Read More!
Wednesday, November 17, 2010
Hulu lowers price and offers referral service
Hulu has lowered its price to $7.99 and is offering a referral service to existing subscribers.
Thanks for being a subscriber to Hulu Plus during our preview. We've been hard at work refining our existing applications, expanding the device coverage, and extending our content lineup. We're excited to announce that today, Hulu Plus is officially launching out of preview to anyone in the U.S. for just $7.99/month.
Since we're now offering Hulu Plus at a lower price than during the preview, your subscription fee has been lowered to $7.99/month, and on your next billing cycle, we'll also automatically credit your account with $2 for each month you've been a subscriber. In addition, we're now offering a 1-week free trial for all new subscribers, so we'll be issuing you an additional $2 credit since the free trial wasn't in place during the preview.
We'd also like to offer you the chance to earn more free time on Hulu Plus by helping us spread the word about the service. For each friend who uses your referral to join Hulu Plus, we'll give you two additional weeks for free, up to 20 weeks total. Each of your referrals will also receive two weeks free on their first month's subscription. For more details on the program and to invite your friends, please visit http://www.hulu.com/profile/referrals.
Since the Hulu Plus preview began, we've added more TV shows and extended our device coverage. To see which shows are now available on Hulu Plus, please visit http://www.hulu.com/plus/content, and to see the most up-to-date list of supported TVs, Blu-ray players, set-top boxes, mobile phones, and tablets visit http://www.hulu.com/plus/devices.
Thanks for supporting us during the Hulu Plus preview. We look forward to continuing to work on your behalf in the months and years to come.
The Hulu Team
Read More!
Thanks for being a subscriber to Hulu Plus during our preview. We've been hard at work refining our existing applications, expanding the device coverage, and extending our content lineup. We're excited to announce that today, Hulu Plus is officially launching out of preview to anyone in the U.S. for just $7.99/month.
Since we're now offering Hulu Plus at a lower price than during the preview, your subscription fee has been lowered to $7.99/month, and on your next billing cycle, we'll also automatically credit your account with $2 for each month you've been a subscriber. In addition, we're now offering a 1-week free trial for all new subscribers, so we'll be issuing you an additional $2 credit since the free trial wasn't in place during the preview.
We'd also like to offer you the chance to earn more free time on Hulu Plus by helping us spread the word about the service. For each friend who uses your referral to join Hulu Plus, we'll give you two additional weeks for free, up to 20 weeks total. Each of your referrals will also receive two weeks free on their first month's subscription. For more details on the program and to invite your friends, please visit http://www.hulu.com/profile/referrals.
Since the Hulu Plus preview began, we've added more TV shows and extended our device coverage. To see which shows are now available on Hulu Plus, please visit http://www.hulu.com/plus/content, and to see the most up-to-date list of supported TVs, Blu-ray players, set-top boxes, mobile phones, and tablets visit http://www.hulu.com/plus/devices.
Thanks for supporting us during the Hulu Plus preview. We look forward to continuing to work on your behalf in the months and years to come.
The Hulu Team
Read More!
Monday, November 15, 2010
Microsoft sold 1M Kinect in 10 days
Microsoft states that it is on pace to sell 5 million by the end of the year. Kinect launched in the U.S. on November 4th and then followed by Europe on November 10th and will launch in Asia on November 18th and Japan on November 20th.
Read More!
Saturday, November 13, 2010
Meida execs with their head in the sand on cord-cutting
Media executives, with the exception of DirecTV, appear to deny the existence of the cord-cutting phenomena that is gripping the country and is likely to grow stronger over the next few years. DirecTV is addressing it head-on with their Cinema initiative, but others from both the content and distribution side, are flat out denying it, with NewsCorp's CEO stating that he "does not get this cord-cutting issue". My guidance to them is wake up. Cord-cutting is real. Remember the denials from the newspapers about the threat from the Internet?
Chase Carey - News Corporation - President and COO
No. In fact, I think we would be looking at subs going up, but I think an awful lot was read into that. I don't get this core cutting issue. I just don't see it. I mean, realistically, I think it is a second or third quarter in a mature market, probably a little tougher quarters and cable down a bit and satellite and telcos still up and I feel it is a fundamental service that for American households is a fundamental part of what they do with their time, and what they value in their life and I think it is a service without comparison, but, no, we would not be seeing that.
Philippe Dauman>: Viacom - President and Chief Executive Officer
As it relates to Netflix. Netflix itself has positioned itself not as being a substitute for television viewing, but as a complementary service, and that is the way it is being used. I think it's remarkable that in the teeth of a powerful recession that we went through, that continued viewership of subscription television has held up as well as it has. So I think there's been much ado about little, in terms of all the talk about cord-cutting. Television provides a great value with a lot of and certainly as it relates to our networks, we have actually seen the number of subscribers, on our fully distributed - or more fully distributed networks, increase from the data that we had through the second quarter. And that's because we continue to achieve incremental distribution
through services like the telcos, which provide a broader array of channels than some of the distributors in the various markets. So we don't see cord-cutting as affecting our business. The economy obviously holds down growth in distribution. As the economy recovers, we expect to see the number of television subscribers in the U.S. grow at a better clip than it has over the last year and a half or so.
Robert A. Iger, Disney - President and Chief Executive Officer
On the multichannel front, we've had conversations with a few multichannel providers very recently. And we know that there are concerns about cord cutting and the impact of all this digital distribution on their business. And the sense that we get is that the trends that they've seen very recently, which is a slight decrease in subscribers, is due mostly to the economy and the fact they went into the marketplace a year ago with some pretty low priced offers to mostly address the economy. And as those have expired, some of those consumers or subscribers have fallen by the wayside. The sense that we get is that no one has any evidence, at least currently, of cord cutting, but I still think that it's in the best interest of this company to see to it that the multichannel business remain robust, continues to flourish because obviously it creates so much value for us. So we're looking at basically the multichannel business in a bullish way, but we feel that we have to very carefully balance that business with our interests as a company to grow revenue on new platforms. And creating new product like the one I described for ESPN and authenticated ESPN and these other services, like Buzzer Beater and Red Zone, is one way to help the multichannel providers do that. So we're going to continue to look for opportunities on new devices because we think it improves monetization. But we're also going to look for opportunities to strengthen our relationship with the multichannel providers and create product that is beneficial to us, to them, and to their consumers.
John K. Martin, Time Warner, Executive Vice President and Chief Financial Officer
I also want to stress that we haven't really seen any evidence of cord cutting relating to over the top competitors. On the cord cutting, we're not seeing it - we doubt that we're going to see it, although we'll all watch for it.
Tom Cullen - DISH Network Corporation - EVP
And some cord cutting is inevitable, but if you read many of the reports, you would view these as binary. That is the assumption is if I consume some content over-the-top, I've therefore cut the cord. We don't really see it that way. We see it as multiple forms of delivery co-existing in the household for the most part, and that's why we are pursuing things like a greater focus on connectivity of our boxes with ethernet, where we're delivering more movie services, why we're doing things with Google TV and so forth. So nobody can predict the future perfectly, but we see it as -- not as binary as most people are projecting it to be.
Mike White - DIRECTV - President, CEO
How does that leads into the DIRECTV Cinema relaunch thought? Do you feel like you're getting a lot mine share on that as an alternative to Netflix over time?
I think we plan to, but in fairness, our DIRECTV -- even though our pay-per-view movies are up over 30% in the quarter, you'd think we already relaunched DIRECTV Cinema. Actually, the relaunch really happens in December. And so I would expect that you will begin to see the impact of that more likely in the first quarter of next year when we really ramp-up our advertising. We just put out some new ads that you may have seen that are specific on the whole movie thing, but they are like a week out as we finished up the NFL SUNDAY TICKET stuff in the quarter. So, I am very bullish about what we will be able to do with the consumer, and I certainly believe -- look, we recognize in our space we have to look very broadly at competitors, and we have a lot of respect for what Netflix has done. But we don't -- we intend to compete and compete aggressively in that space. And I think you will see a lot of that as we roll of our new DIRECTV Cinema service in December of this year. I think that will give you a bit of the taste of where we are going, and I think the bigger metric to keep in mind is, as I said, our VOD per subscriber is less than half of what cable guys are today, much less were Netflix is. So, we think it is a big revenue growth opportunity for our
Company.
Landel Hobbs - Time Warner Cable Inc. - COO
By and large, similar to what we saw on the connect side, these subs were in our two lowest value segments. On the other hand, we've been performing well in high-end, high ARPU segments. By the way, we haven't been able to identify any increase in video cord cutting related to over-the-top video. A couple of examples -- first, as Rob mentioned, our video losses in the quarter were driven by single play video customers and second, our video high speed data Double Plays actually increased in the quarter. That's the opposite of what we'd expect to see if there were meaningful cord cutting. And another example, we looked at college towns like Austin, Texas and Columbus, Ohio in our footprint to examine the thesis that video cord cutting might have contributed to weaker connect volume this quarter. Turns out, the college enrollment flat this year compared to last and our video connect volumes were also flat. So, we'll continue to monitor cord cutting, but haven't found evidence where you might expect to see it.
Neil Smit - Comcast Corporation - President, Cable
John Hodulik - UBS - Analyst
Thanks, guys. Good morning. The Video losses were a little higher than we expected. Can you comment on what do you think is driving that? Is that -- now you said some hangover from the digital transition but is there evidence in the numbers that you are seeing more cord-cutting from over the top or even competition from AT&T and Verizon?
Hi, John. It's Neil. I think there were a few factors and let me break them down. The first was the economic situation that Mike referred to, we are seeing fewer occupied housing units and the unemployment is still a factor. I think the second is the digital transition and the promotional roll off. 42% of the customers we lost were basic customers. The digital transition appears to be mostly behind us. I think the third reason is the rate increases we took so this year we took rate increases over the last six months so Q2 and Q3 in about 75% of our footprint versus about 3% last year. From an over-the-top impact, we have -- all our exit surveys have seen almost no impact. We have seen customers who are disconnecting and not going to a competitor. That small number of customers appear to be going over-the-air much more than any over-the-top impact. The competitive situation really hasn't changed much. We have seen year-over-year a buildout of the RBOCs, so AT&T about 2.2 million home buildout. We haven't seen a significant increase of that competitive factor.
Vijay Jayant - Citadel Securities - Analyst
I really have sort of an observation and want to get your reaction to it is there has been a lot of talk about over-the-top impact to multichannel video, but if you sort of look at the pricing that most operators have for the faster speed tiers of broadband, if there is over-the-top cord-cutting, aren't cable operators actually on the margin a little better or even neutral given the margin of the two businesses? Thanks.
I think you are right in terms of the potential opportunity. If over-the-top and there -- comes into being and there is more consumption of online video, we feel very good about our capacity. That is one of the reasons we have invested so heavily in DOCSIS 3. We feel that that big pipe into the house is important and we will continue to invest in speed increases like that, like DOCSIS 3. We think it's an important component and the consumers continue to consume more bandwidth.
Read More!
Chase Carey - News Corporation - President and COO
No. In fact, I think we would be looking at subs going up, but I think an awful lot was read into that. I don't get this core cutting issue. I just don't see it. I mean, realistically, I think it is a second or third quarter in a mature market, probably a little tougher quarters and cable down a bit and satellite and telcos still up and I feel it is a fundamental service that for American households is a fundamental part of what they do with their time, and what they value in their life and I think it is a service without comparison, but, no, we would not be seeing that.
Philippe Dauman>: Viacom - President and Chief Executive Officer
As it relates to Netflix. Netflix itself has positioned itself not as being a substitute for television viewing, but as a complementary service, and that is the way it is being used. I think it's remarkable that in the teeth of a powerful recession that we went through, that continued viewership of subscription television has held up as well as it has. So I think there's been much ado about little, in terms of all the talk about cord-cutting. Television provides a great value with a lot of and certainly as it relates to our networks, we have actually seen the number of subscribers, on our fully distributed - or more fully distributed networks, increase from the data that we had through the second quarter. And that's because we continue to achieve incremental distribution
through services like the telcos, which provide a broader array of channels than some of the distributors in the various markets. So we don't see cord-cutting as affecting our business. The economy obviously holds down growth in distribution. As the economy recovers, we expect to see the number of television subscribers in the U.S. grow at a better clip than it has over the last year and a half or so.
Robert A. Iger, Disney - President and Chief Executive Officer
On the multichannel front, we've had conversations with a few multichannel providers very recently. And we know that there are concerns about cord cutting and the impact of all this digital distribution on their business. And the sense that we get is that the trends that they've seen very recently, which is a slight decrease in subscribers, is due mostly to the economy and the fact they went into the marketplace a year ago with some pretty low priced offers to mostly address the economy. And as those have expired, some of those consumers or subscribers have fallen by the wayside. The sense that we get is that no one has any evidence, at least currently, of cord cutting, but I still think that it's in the best interest of this company to see to it that the multichannel business remain robust, continues to flourish because obviously it creates so much value for us. So we're looking at basically the multichannel business in a bullish way, but we feel that we have to very carefully balance that business with our interests as a company to grow revenue on new platforms. And creating new product like the one I described for ESPN and authenticated ESPN and these other services, like Buzzer Beater and Red Zone, is one way to help the multichannel providers do that. So we're going to continue to look for opportunities on new devices because we think it improves monetization. But we're also going to look for opportunities to strengthen our relationship with the multichannel providers and create product that is beneficial to us, to them, and to their consumers.
John K. Martin, Time Warner, Executive Vice President and Chief Financial Officer
I also want to stress that we haven't really seen any evidence of cord cutting relating to over the top competitors. On the cord cutting, we're not seeing it - we doubt that we're going to see it, although we'll all watch for it.
Tom Cullen - DISH Network Corporation - EVP
And some cord cutting is inevitable, but if you read many of the reports, you would view these as binary. That is the assumption is if I consume some content over-the-top, I've therefore cut the cord. We don't really see it that way. We see it as multiple forms of delivery co-existing in the household for the most part, and that's why we are pursuing things like a greater focus on connectivity of our boxes with ethernet, where we're delivering more movie services, why we're doing things with Google TV and so forth. So nobody can predict the future perfectly, but we see it as -- not as binary as most people are projecting it to be.
Mike White - DIRECTV - President, CEO
How does that leads into the DIRECTV Cinema relaunch thought? Do you feel like you're getting a lot mine share on that as an alternative to Netflix over time?
I think we plan to, but in fairness, our DIRECTV -- even though our pay-per-view movies are up over 30% in the quarter, you'd think we already relaunched DIRECTV Cinema. Actually, the relaunch really happens in December. And so I would expect that you will begin to see the impact of that more likely in the first quarter of next year when we really ramp-up our advertising. We just put out some new ads that you may have seen that are specific on the whole movie thing, but they are like a week out as we finished up the NFL SUNDAY TICKET stuff in the quarter. So, I am very bullish about what we will be able to do with the consumer, and I certainly believe -- look, we recognize in our space we have to look very broadly at competitors, and we have a lot of respect for what Netflix has done. But we don't -- we intend to compete and compete aggressively in that space. And I think you will see a lot of that as we roll of our new DIRECTV Cinema service in December of this year. I think that will give you a bit of the taste of where we are going, and I think the bigger metric to keep in mind is, as I said, our VOD per subscriber is less than half of what cable guys are today, much less were Netflix is. So, we think it is a big revenue growth opportunity for our
Company.
Landel Hobbs - Time Warner Cable Inc. - COO
By and large, similar to what we saw on the connect side, these subs were in our two lowest value segments. On the other hand, we've been performing well in high-end, high ARPU segments. By the way, we haven't been able to identify any increase in video cord cutting related to over-the-top video. A couple of examples -- first, as Rob mentioned, our video losses in the quarter were driven by single play video customers and second, our video high speed data Double Plays actually increased in the quarter. That's the opposite of what we'd expect to see if there were meaningful cord cutting. And another example, we looked at college towns like Austin, Texas and Columbus, Ohio in our footprint to examine the thesis that video cord cutting might have contributed to weaker connect volume this quarter. Turns out, the college enrollment flat this year compared to last and our video connect volumes were also flat. So, we'll continue to monitor cord cutting, but haven't found evidence where you might expect to see it.
Neil Smit - Comcast Corporation - President, Cable
John Hodulik - UBS - Analyst
Thanks, guys. Good morning. The Video losses were a little higher than we expected. Can you comment on what do you think is driving that? Is that -- now you said some hangover from the digital transition but is there evidence in the numbers that you are seeing more cord-cutting from over the top or even competition from AT&T and Verizon?
Hi, John. It's Neil. I think there were a few factors and let me break them down. The first was the economic situation that Mike referred to, we are seeing fewer occupied housing units and the unemployment is still a factor. I think the second is the digital transition and the promotional roll off. 42% of the customers we lost were basic customers. The digital transition appears to be mostly behind us. I think the third reason is the rate increases we took so this year we took rate increases over the last six months so Q2 and Q3 in about 75% of our footprint versus about 3% last year. From an over-the-top impact, we have -- all our exit surveys have seen almost no impact. We have seen customers who are disconnecting and not going to a competitor. That small number of customers appear to be going over-the-air much more than any over-the-top impact. The competitive situation really hasn't changed much. We have seen year-over-year a buildout of the RBOCs, so AT&T about 2.2 million home buildout. We haven't seen a significant increase of that competitive factor.
Vijay Jayant - Citadel Securities - Analyst
I really have sort of an observation and want to get your reaction to it is there has been a lot of talk about over-the-top impact to multichannel video, but if you sort of look at the pricing that most operators have for the faster speed tiers of broadband, if there is over-the-top cord-cutting, aren't cable operators actually on the margin a little better or even neutral given the margin of the two businesses? Thanks.
I think you are right in terms of the potential opportunity. If over-the-top and there -- comes into being and there is more consumption of online video, we feel very good about our capacity. That is one of the reasons we have invested so heavily in DOCSIS 3. We feel that that big pipe into the house is important and we will continue to invest in speed increases like that, like DOCSIS 3. We think it's an important component and the consumers continue to consume more bandwidth.
Read More!
NewsCorp has already denied interest in Yahoo!
With the recent talk about NewsCorp's interest in buying Yahoo!, we thought to go back the the company's recent public comments on this. During the 3Q10 conference call, responding to that very question from Credit Suisse analyst Spencer Wang, CEO Chase Carey essentially denied interest in pursuing Yahoo!. In addition, NewsCorp has failed at managing MySpace so what makes them think they can do a better job with a larger Internet asset. Doesn't make sense to us.
NewsCorp's response on 3Q10 call about acquiring Yahoo!
Chase Carey - News Corporation - President and COO
I think some things like Yahoo! or the press need to have things to write about. But, I think it's we don't need -- we are in now, certainly do not need to make any acquisitions. I think we've a great portfolio of businesses that we can grow aggressively that have a good diversification amongst them. I think what we want to be is make sure we're smart about things, and look at things that are out there and if there's something there, then we should consider it, but we're going to do so in a very disciplined way. I mean, we say -- looked it up, cable channel, we looked at Travel Channel a year ago. We kicked the tires something overseas recently, and, ultimately, they were -- people were looking for values that didn't make sense to us, and I think our general preference is to build businesses, not buy businesses.
It's the way we built the great businesses in News Corporation. It's what we -- where our focus will continue to remain, but if we see something that we think we could acquire it at a very attractive price that fits, I think we'd want to take a look at it. But, we're going to do so in a very disciplined way. We're certainly not out shopping for anything, and, again, I think our priority and focus and our preference is to build businesses. I think we've real opportunities to do that.
Read More!
NewsCorp's response on 3Q10 call about acquiring Yahoo!
Chase Carey - News Corporation - President and COO
I think some things like Yahoo! or the press need to have things to write about. But, I think it's we don't need -- we are in now, certainly do not need to make any acquisitions. I think we've a great portfolio of businesses that we can grow aggressively that have a good diversification amongst them. I think what we want to be is make sure we're smart about things, and look at things that are out there and if there's something there, then we should consider it, but we're going to do so in a very disciplined way. I mean, we say -- looked it up, cable channel, we looked at Travel Channel a year ago. We kicked the tires something overseas recently, and, ultimately, they were -- people were looking for values that didn't make sense to us, and I think our general preference is to build businesses, not buy businesses.
It's the way we built the great businesses in News Corporation. It's what we -- where our focus will continue to remain, but if we see something that we think we could acquire it at a very attractive price that fits, I think we'd want to take a look at it. But, we're going to do so in a very disciplined way. We're certainly not out shopping for anything, and, again, I think our priority and focus and our preference is to build businesses. I think we've real opportunities to do that.
Read More!
Friday, November 12, 2010
More value for ValueVision in the hands of ComCast
ValueVision shares are likely to benefit from an improvement in both sales and EBITDA, with Adj. EBITDA likely turning positive, when they report 3Q10 results next week, November 18th. Plus Comcast, after the NBC deal is consummated, is likely to take hold of ValueVision and grow it into a very competitive television shopping network.
The distant no. 3 home shopping television network once saw its shares trade as high as $57 back in the hey days of the late 1990s but as low as 20 cents during the recent financial crisis. See a previous write-up on ValueVision here.
However, the company appears to be on track for a solid rebound. So far this year, they have hired a new CFO, a VP of Merchandising, a VP of Merchandising Analysts (whatever that is), a VP of Quality Assurance, and a new President overseeing Merchandising, Planning, Programming, Broadcast Operations, and On-Air Talent. All of these appointees have decades of experiencing in retailing and media and provides a deep bench from which the company can continue to pursue its turnaround strategy.
Several insiders have actually bought shares, which to us, is a good sign.
We are estimating that the company can grow sales 6.2% y/y to $127 million in 3Q10 and likely see an Adj. EBITDA swing of approximately $7 million y/y to $1.3 million for a 1% margin. <
ValueVision's two competitors grew their domestic sales an average of 6.2% in 3Q and we are assuming that ValueVision can match that growth rate. In 2Q10, ValueVision bested its competition by 2.6%, thus, our estimate could likely prove conservative.
Layer on top of that a potential acquisition. One of the two competitors have expressed interest in ValueVision in the past.
But notably, and one of the best reasons to own the stock, is the potential for what ValueVision can become in the hands of Comcast. The cable company is set to get NBC's stake in ValueVision when the merger is completed. It is likely to then take hold of the network, invest in it, and grow it competitively. Watch for that catalyst.
Only one firm, Dougherty, has a rating on the shares, at Buy with a $5 price target, suggesting a 60% upside is achievable. Our back of the envelope valuations show that the shares can jump to over $7 by year-end 2011, using modest assumptions for revenue growth through 2012 and a 5% Adj. EBITDA margin, which is half the margins of competitor HSN. A 7x multiple we think is reasonable for this business and compares to its competitors. At a 7.5% Adj. EBITDA margin, which is certainly doable, the shares are worth north of $10.
Read More!
The distant no. 3 home shopping television network once saw its shares trade as high as $57 back in the hey days of the late 1990s but as low as 20 cents during the recent financial crisis. See a previous write-up on ValueVision here.
However, the company appears to be on track for a solid rebound. So far this year, they have hired a new CFO, a VP of Merchandising, a VP of Merchandising Analysts (whatever that is), a VP of Quality Assurance, and a new President overseeing Merchandising, Planning, Programming, Broadcast Operations, and On-Air Talent. All of these appointees have decades of experiencing in retailing and media and provides a deep bench from which the company can continue to pursue its turnaround strategy.
Several insiders have actually bought shares, which to us, is a good sign.
We are estimating that the company can grow sales 6.2% y/y to $127 million in 3Q10 and likely see an Adj. EBITDA swing of approximately $7 million y/y to $1.3 million for a 1% margin. <
ValueVision's two competitors grew their domestic sales an average of 6.2% in 3Q and we are assuming that ValueVision can match that growth rate. In 2Q10, ValueVision bested its competition by 2.6%, thus, our estimate could likely prove conservative.
Layer on top of that a potential acquisition. One of the two competitors have expressed interest in ValueVision in the past.
But notably, and one of the best reasons to own the stock, is the potential for what ValueVision can become in the hands of Comcast. The cable company is set to get NBC's stake in ValueVision when the merger is completed. It is likely to then take hold of the network, invest in it, and grow it competitively. Watch for that catalyst.
Only one firm, Dougherty, has a rating on the shares, at Buy with a $5 price target, suggesting a 60% upside is achievable. Our back of the envelope valuations show that the shares can jump to over $7 by year-end 2011, using modest assumptions for revenue growth through 2012 and a 5% Adj. EBITDA margin, which is half the margins of competitor HSN. A 7x multiple we think is reasonable for this business and compares to its competitors. At a 7.5% Adj. EBITDA margin, which is certainly doable, the shares are worth north of $10.
Read More!
Google should look to buy MySpace
This make sense to us. NewsCorp is having a difficult time driving this business back to growth and profitability. This is likely because traditional media companies do not have the necessary vision to manage and grow prominent Internet assets. Time Warner gave up on AOL and Newscorp should do the same with MySpace.
However, MySpace is not, we believe, in the best fundamental position to be spun off into a separate company like AOL. Thus, a sale should be the best option.
Enter Google. Recent press reports states that Google is looking to do an acquisition along the size of YouTube and DoubleClick. We think MySpace will make a perfect addition to the Google architecture, and in particular, YouTube. There is a tremendous amount of synergies with YouTube that would allow both sites to grow. And with rumors that Google is prepping a FaceBook competitor, Google can layer on MySpace to that FaceBook competing business, add robust security settings, and the result should be a feasible competitor to FaceBook.
Google can then add a link to MySpace on the white homepage to rebuild awareness and drive traffic to the site. This would probably allow the search business on MySpace to grow exponentially.
Just our two cents.
Here are recent comments from NewsCorp about MySpace:
"This increased loss primarily reflects $70 million in lower search and advertising revenues at MySpace versus a year ago."
"On the other hand, results in MySpace have been below plan"
"The final business I want to touch on is MySpace. We've been clear that MySpace is a problem. We recognize that we had to redefine and largely rebuild this business. We believe the foundation was there to warrant this effort and it has been our focus this year. We've made adjustments in the cost structure and most recently by consolidating ad sales and, most importantly, in the last few weeks we have relaunched MySpace with a focus on social entertainment. We feel really good about this relaunch product and it has been generally well received by the opinion makers in the business but we recognize the critical issue is building interest with consumers. We also recognize the challenges we face in doing so. The current losses are not acceptable or sustainable. Our current management did not create these losses, but they know we have to address them. I give them great credit for pouring their hearts and sweat into creating a great new MySpace experience that has the potential to be an exciting business for us. We equally know we need to make real headway in the coming quarters to get this business to a sustainable level."
"Michael Nathanson - Sanford C. Bernstein & Company - Analyst
Thanks, I have one for Chase on MySpace. You mentioned the relaunch. I wondered how much time needs to pass before you judge whether or not it's successful and how you judge whether or not it's successful? What are you looking for and, if it doesn't work, what happens next? That's what I am looking at."
"Chase Carey - News Corporation - President and COO
I'm not going to put a specific safety or fluid businesses, but I think this is something we looked to judge in quarters, not in years. And, I think our goal is to get to a place, essentially, probably, that is got a revenue top line that is going in the right direction and a clear path to profitability. I think those are the goals we set for that business, and I think the product we launch we feel really good about. We recognize we have to build an audience. We've got an audience. We still have great reach to give us the foundation to bring an audience to that product but our traffic numbers are still not going in the right direction and we have to stabilize that and have a predictable path forward and make sure we've the right cost structure and again a clear path to be a profitable business."
Read More!
However, MySpace is not, we believe, in the best fundamental position to be spun off into a separate company like AOL. Thus, a sale should be the best option.
Enter Google. Recent press reports states that Google is looking to do an acquisition along the size of YouTube and DoubleClick. We think MySpace will make a perfect addition to the Google architecture, and in particular, YouTube. There is a tremendous amount of synergies with YouTube that would allow both sites to grow. And with rumors that Google is prepping a FaceBook competitor, Google can layer on MySpace to that FaceBook competing business, add robust security settings, and the result should be a feasible competitor to FaceBook.
Google can then add a link to MySpace on the white homepage to rebuild awareness and drive traffic to the site. This would probably allow the search business on MySpace to grow exponentially.
Just our two cents.
Here are recent comments from NewsCorp about MySpace:
"This increased loss primarily reflects $70 million in lower search and advertising revenues at MySpace versus a year ago."
"On the other hand, results in MySpace have been below plan"
"The final business I want to touch on is MySpace. We've been clear that MySpace is a problem. We recognize that we had to redefine and largely rebuild this business. We believe the foundation was there to warrant this effort and it has been our focus this year. We've made adjustments in the cost structure and most recently by consolidating ad sales and, most importantly, in the last few weeks we have relaunched MySpace with a focus on social entertainment. We feel really good about this relaunch product and it has been generally well received by the opinion makers in the business but we recognize the critical issue is building interest with consumers. We also recognize the challenges we face in doing so. The current losses are not acceptable or sustainable. Our current management did not create these losses, but they know we have to address them. I give them great credit for pouring their hearts and sweat into creating a great new MySpace experience that has the potential to be an exciting business for us. We equally know we need to make real headway in the coming quarters to get this business to a sustainable level."
"Michael Nathanson - Sanford C. Bernstein & Company - Analyst
Thanks, I have one for Chase on MySpace. You mentioned the relaunch. I wondered how much time needs to pass before you judge whether or not it's successful and how you judge whether or not it's successful? What are you looking for and, if it doesn't work, what happens next? That's what I am looking at."
"Chase Carey - News Corporation - President and COO
I'm not going to put a specific safety or fluid businesses, but I think this is something we looked to judge in quarters, not in years. And, I think our goal is to get to a place, essentially, probably, that is got a revenue top line that is going in the right direction and a clear path to profitability. I think those are the goals we set for that business, and I think the product we launch we feel really good about. We recognize we have to build an audience. We've got an audience. We still have great reach to give us the foundation to bring an audience to that product but our traffic numbers are still not going in the right direction and we have to stabilize that and have a predictable path forward and make sure we've the right cost structure and again a clear path to be a profitable business."
Read More!
Wednesday, October 27, 2010
Microsoft's End Game in Search - Baidu
Now that the search alliance with Yahoo! is firmly in place, Microsoft should look elsewhere for search penetration, in particularly China, and look into the “long-term” possibility of acquiring Baidu.
China is the fastest growing market for online search and holds the most promise in terms of incremental monetization potential. If Microsoft has serious intentions of taking global market share from Google, then it needs to seriously consider BIDU, provided that Gates and Ballmer are undaunted by the censorship issue.
Baidu's search business has been performing remarkably well over the past year, with accelerating performance due in part to Google's de facto exit from the Chinese market. In the most recent quarter, revenues and profits were up ~80% and more than 100%, respectively.
Now, we are fully aware that an acquisition of what is essentially a Chinese media business by a foreign company may not be possible. In the near-term, however, a partnership may make sense until ownership restrictions ease.
Baidu's market capitalization stands at nearly $40 billion today, about equivalent to Microsoft's cash and investments balance.
Although Bing's search share has plateaued in the U.S., Microsoft has proven that it can be competitive, as Bing has turned out to be a very well designed approach to search. [Recall years back the Wall Street analyst reports touting 95-100% search share for Google in the U.S.! It ain't gonna happen.] But for now MSFT should leave the acquisition talks with Yahoo! to the private equity companies (see write-up here), AOL, and NewsCorp, and focus on China where the future of search monetization lies. At the very least it will not face stiff competition from Google.
As an aside, the median price target for BIDU shares from 11 brokerages is $115 and the average is $116, about $3-$4 up from the current trading range. Only two things happen from here. Brokerage firms will up price targets or downgrade the stock. Keep an eye out for either. The range of price targets is $66 to $140.
Good luck investing!
Read More!
China is the fastest growing market for online search and holds the most promise in terms of incremental monetization potential. If Microsoft has serious intentions of taking global market share from Google, then it needs to seriously consider BIDU, provided that Gates and Ballmer are undaunted by the censorship issue.
Baidu's search business has been performing remarkably well over the past year, with accelerating performance due in part to Google's de facto exit from the Chinese market. In the most recent quarter, revenues and profits were up ~80% and more than 100%, respectively.
Now, we are fully aware that an acquisition of what is essentially a Chinese media business by a foreign company may not be possible. In the near-term, however, a partnership may make sense until ownership restrictions ease.
Baidu's market capitalization stands at nearly $40 billion today, about equivalent to Microsoft's cash and investments balance.
Although Bing's search share has plateaued in the U.S., Microsoft has proven that it can be competitive, as Bing has turned out to be a very well designed approach to search. [Recall years back the Wall Street analyst reports touting 95-100% search share for Google in the U.S.! It ain't gonna happen.] But for now MSFT should leave the acquisition talks with Yahoo! to the private equity companies (see write-up here), AOL, and NewsCorp, and focus on China where the future of search monetization lies. At the very least it will not face stiff competition from Google.
As an aside, the median price target for BIDU shares from 11 brokerages is $115 and the average is $116, about $3-$4 up from the current trading range. Only two things happen from here. Brokerage firms will up price targets or downgrade the stock. Keep an eye out for either. The range of price targets is $66 to $140.
Good luck investing!
Read More!
Wednesday, October 13, 2010
AOLHOO or HOOAOL: Two Wrongs Won't Make a Right But Yahoo! Shareholders Win
Will Force MSFT's hand towards a Full Acquisition of Yahoo!.
The Wall Street Journal is reporting that private equity firms together with AOL are looking to merge AOL and Yahoo!. We have argued in the past that Yahoo! needs to take decisive actions to boost its stock price, and failing that, private equity should look into buying Yahoo!. See the write-up here. However, merging AOL and Yahoo!, two fundamentally and secularly challenged companies, is a bad idea. Two wrongs never make a right. Private equity taking either Yahoo! or AOL private does make sense. Nonetheless, any attempt by a private equity firm to buy Yahoo! or merge it with AOL will force Microsoft into making a full offer for Yahoo!. Yahoo! shareholders win.
Buy business phones and other equipment here.
There are several reasons why merging Yahoo! and AOL is not worth the headache:
1. There are no clear scale benefits to merging the two companies in display,
search, or social networking.
2. The two share two different search partners, AOL with Google and Yahoo! with
Microsoft, both in long-term contracts.
3. Getting Yahoo!'s board to agree to this will be tough although given the
disastrous handling of the Microsoft offer, they may be forced to seriously
consider this one.
4. Cost synergies will be not be accretive enough to add material value to the
merged entity
5. Bartz or Armstrong? Bartz has 18 months left on her contract and it will be
costly to rid her of her title. Plus, we get the feeling that she would not bow
out gracefully.
Read More!
The Wall Street Journal is reporting that private equity firms together with AOL are looking to merge AOL and Yahoo!. We have argued in the past that Yahoo! needs to take decisive actions to boost its stock price, and failing that, private equity should look into buying Yahoo!. See the write-up here. However, merging AOL and Yahoo!, two fundamentally and secularly challenged companies, is a bad idea. Two wrongs never make a right. Private equity taking either Yahoo! or AOL private does make sense. Nonetheless, any attempt by a private equity firm to buy Yahoo! or merge it with AOL will force Microsoft into making a full offer for Yahoo!. Yahoo! shareholders win.
Buy business phones and other equipment here.
There are several reasons why merging Yahoo! and AOL is not worth the headache:
1. There are no clear scale benefits to merging the two companies in display,
search, or social networking.
2. The two share two different search partners, AOL with Google and Yahoo! with
Microsoft, both in long-term contracts.
3. Getting Yahoo!'s board to agree to this will be tough although given the
disastrous handling of the Microsoft offer, they may be forced to seriously
consider this one.
4. Cost synergies will be not be accretive enough to add material value to the
merged entity
5. Bartz or Armstrong? Bartz has 18 months left on her contract and it will be
costly to rid her of her title. Plus, we get the feeling that she would not bow
out gracefully.
Read More!
Saturday, October 9, 2010
CPCs are improving
In a positive sign for Google, Yahoo, and Bing, our work shows that industry search pricing is improving sequentially.
Business equipment for purchase. Read More!
Business equipment for purchase. Read More!
Monday, October 4, 2010
Yahoo! Are You Listening?
Yahoo's shares are down 15% year-to-date, massively underperforming the S&P 500, which is up 2.5% since the beginning of the year. To be fair, Yahoo's main competitor, Google, has seen its share price decline 15% over the same time period as well. Also, to be fair, since Carol Bartz was named CEO on January 13, 2009, Yahoo's shares have appreciated 18%. Not bad for almost two years of work. So remind us why everyone is bashing Ms. Bartz! Oh yes, the shares underperformed the S&P 500, which is up 31% since Bartz took over the helms, and even more, the shares are still 50% below Microsoft's offer price. So no matter how you view it, Carol Bartz's performance at Yahoo! has underwhelmed. It is a toss up as to who remains in their respective CEO positions by end of 2012, Bartz or President Obama, who assumed his role around the same time as Carol Bartz. We will let you call it. Google's shares are up nearly 70% over the share time period.
Buy business phones and other equipment here.
About two months ago we posited that Yahoo's management could be taking a page out of John Malone's book and is looking to financial engineer their way to a much better stock price. See write-up here.
In that spirit, we suggested that management should lever the balance sheet and use the cash to aggressively shrink equity. Our analysis suggested that leverage of 2x was appropriate. That on top of the already existing $3 billion share repurchase program would boost the share price by 30%.
We also suggested that management spin off the Asian assets into a separate public company or perhaps a tracking stock, providing investors with additional currency. A transaction of that type could be done tax efficiently, we believe, particularly for the Chinese assets.
After those two were done, we suggested that management put the company back on the block seeking an acquirer, perhaps Microsoft or Disney, or that private equity should take a hard look at Yahoo!.
Since then we have not see any evidence that management is leaning towards any of those suggestions all the while the shares flat-lined.
A recent report did suggest that private equity was looking at the company and specifically looking to merge it with AOL. Bad idea! Why merge two fundamentally and secularly challenged ships. Sure some cost synergies exists but revenue synergies are practically non-existent with zero scale benefits.
So unless Yahoo!'s management has something magical up their sleeves to explain the two month lull, and we don't believe it will be meaningful improved operational results, we implore Yahoo!'s management to own up to reality and take the above steps to boost the share price.
Read More!
Buy business phones and other equipment here.
About two months ago we posited that Yahoo's management could be taking a page out of John Malone's book and is looking to financial engineer their way to a much better stock price. See write-up here.
In that spirit, we suggested that management should lever the balance sheet and use the cash to aggressively shrink equity. Our analysis suggested that leverage of 2x was appropriate. That on top of the already existing $3 billion share repurchase program would boost the share price by 30%.
We also suggested that management spin off the Asian assets into a separate public company or perhaps a tracking stock, providing investors with additional currency. A transaction of that type could be done tax efficiently, we believe, particularly for the Chinese assets.
After those two were done, we suggested that management put the company back on the block seeking an acquirer, perhaps Microsoft or Disney, or that private equity should take a hard look at Yahoo!.
Since then we have not see any evidence that management is leaning towards any of those suggestions all the while the shares flat-lined.
A recent report did suggest that private equity was looking at the company and specifically looking to merge it with AOL. Bad idea! Why merge two fundamentally and secularly challenged ships. Sure some cost synergies exists but revenue synergies are practically non-existent with zero scale benefits.
So unless Yahoo!'s management has something magical up their sleeves to explain the two month lull, and we don't believe it will be meaningful improved operational results, we implore Yahoo!'s management to own up to reality and take the above steps to boost the share price.
Read More!
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