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Media Conglomerates Roundup: IACI, TWX, VIA

Posted on Monday, May 19th 2008

Some of the media stocks worth watching reported their Q1 earnings recently.

The interactive conglomerate, IAC (Nasdaq: IACI) operating more than 60 diversified brands, announced an increase in the revenues for the quarter by 7% over the year to $1.6 billion beating the Street’s estimation of $1.53 billion. The EPS was $0.30, missing the market’s estimates of $0.31 and down by 9% compared to the previous year’s $0.33.

During the quarter, they repurchased $6 million worth of common stock for an average price of $24.25.

IAC was going through a legal battle with Liberty Media which was also putting a hold on its plan to spin off into its five key segments. The court ruling in favor of Barry Diller has put an end to that standoff.

IAC’s biggest segment is Retailing, which contributed 42% to the overall quarter revenue. Its revenue of $676.9 grew by a marginal 2% over the year amid worries of economic pressures. Ticketmaster contributed 22% to the revenue and grew by 15% over the year to $349 million. During the quarter, they acquired Paciolan and TicketsNow and are now deploying additional efforts into organic growth in international markets – specifically China and
Germany.

Like the other online real estate sites, the subprime crisis hit their Lending Tree business which contributed only 4% to the revenues at $70 million, registering a 38% reduction compared to the previous year revenue. Their Membership & Subscriptions segment – Interval – grew by an impressive 34% to $115.9 million. Their Media and Advertising business which will be known as New IAC (will comprise of Match.com, ServiceMagic, Entertainment and Emerging Businesses) grew by 22% to $392 million.

IAC’s strategy is to be a major player in the local search and entertainment space. They did not divulge the numbers, but commented on their revenue per query having grown significantly across all their search properties during the quarter. Recently, their Ask.com venture announced the acquisition of Lexico Publishing Group which owns Dictionary.com, Thesaurus.com, and Reference.com.

Post the announcement of their quarter’s results, the stock rose 1.7% to $20.81 and is now trading 16% higher at $23.71.

1yr IACI

The other company, I had suggested should spin off its businesses is Time Warner. In the quarter results announcement, they announced their intention of a complete structural separation of Time Warner Cable, although the AOL+Time, Inc. combo I suggested is not in order yet.

During the quarter, the company’s revenue grew by a marginal 2% over the year to $11.4 billion, which was in line with the market’s expectations. Their EPS remained flat at $0.22 missing the market’s expectations of $0.23.

Segment wise, AOL’s revenue declined by 22% to $1.1 billion. Cable continued to to be their biggest contributor by contributing 36% to the quarter’s revenue and growing by 8% over the year. Filmed entertainment brought in $2.8 billion growing by 3.5% for the year. Netowrks grew by 10% to $2.7 billion, while Publishing remained flat at $1.0 billion for the quarter.

AOL’s revenues declined primarily due to their previous year’s sale of their business in
Germany, and decline in their subscriber base by 3.3 million due to the withdrawal of their free internet products to its subscribers. AOL had 110 million average monthly domestic unique visitors and 52 billion domestic page views. According to Media Metrix AOL is ranked as a top three website by unique visitors in many of the top primary programming verticals, including entertainment, news, health, money and finance, celebrity, movies, music, and TV. It’s a real shame that they cannot take advantage of this position by leveraging the Time. Inc. content, which aligns rather nicely with these verticals. Time, Inc. also has great positions in Sports, Women, etc.

On the Cable front, they are aggressive on the Blu-Ray and the VOD format. They expect VOD get them 60-70% margins compared to 20-30% on standard physical rental.

I had mentioned how, the long-term success of Time Warner depends on how quickly and effectively the Company is able to execute the strategic restructuring. Hopefully, with the Cable business being spun off, they should be able to do the rest of the suggested restructuring.

The stock is trading at $16.51, 11% up since the day of the announcement of the results.

1yr TWX

The other media company that announced its quarterly results is Viacom. The Company made the right moves last quarter and repeated the performance in the recent quarter results as well.

For the quarter, their revenues grew 15% to $3.12 billion. Media networks revenues were up 16% for the quarter to $2 billion, and the filmed entertainment segment delivered 12% revenue growth in the quarter to $1.15 billion.

Their adjusted diluted EPS for the quarter was $0.44, registering a 29% increase over the previous year.

Viacom is the first major media company to launch a series of virtual worlds that seamlessly integrate television programming with emerging virtual world technology, e.g. Nicktropolis. On similar lines, this quarter, they launched The Hills on MTV Mobile, delivering close to 1 million mobile video streams for the viewers to be able to view the series on their mobiles.

They continued their regional expansion with the launch of VH1 and Nickelodeon in
Denmark. They are proposing to come up with Nick Arabia and Nick Poland in the summers. Their innovations in the advertising arena continued this quarter. Along with Unilever, MTV developed a five-episode 3.5 minute micro-series which has gained remarkable success on all brand recall metrics.

They recently announced their joint venture with MGM and Lionsgate to launch an entertainment service to encompass a premium television channel and VOD service. The joint venture will have access to the new and classic feature films and original premium television series of five leading studios.

The stock, however, did not do too much with the results and is still trading at the same $39.7 levels where it was before the announcement of the results.

1yr VIA

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