That boom you heard was DTS
Shares jump 25% in August, but Imax, RealNets see slippageThe Nasdaq lost ground for most of August before a late rally helped it end the month up 2%. New-media stocks also had its ups and downs, with some high-profile decliners and various gainers, including a hefty 24.7% move for DTS Inc. and 2.4% gain for TiVo Inc.
DTS Inc., which makes audio parts for speakers, DVD players, video game consoles and home and commercial theater systems, wowed that investors with its full-year guidance delivered last month.
Still, Canaccord Adams analyst Steven Frankel recommended investors stay on the sidelines, "given the run in shares."
DTS reported strong quarterly earnings, but the results were "already reflected in the valuation" of the stock, Frankel noted.
The company's $12.9 million profit in the second quarter beat Frankel's $11.4 million forecast, in part, he said, because the contribution from high-definition DVDs was more than he figured. Blu-ray Disc and HD DVD accounted for 12% of technology licensing revenue during the second quarter, up from 5% in the first quarter.
Frankel also is a bit bearish on the company's effort to sell its digital-cinema/theatrical equipment business.
"Given the current environment and the history of losses in this business, it will not be easy to find a buyer," he said. "We would not rule out a DTS-funded management buyout of this division."
As for TiVo, the stock was trending higher throughout most of August as its rollout with Comcast Corp. neared, but shares declined at month's end after the firm's latest quarterly earnings Wednesday included some disappointments. Nevertheless, TiVo still is fighting an uphill battle against satellite and cable operators that offer less expensive DVRs. Leichtman Research Group said last month that one in every five households in the U.S. now has a DVR, up from one in 13 two years ago.
JMP Securities analyst Ingrid Ebeling, who has a "market outperform" and $8 price target on TiVo shares, said the new $299 TiVo HD is selling much better than its predecessor, a fancier $799 model.
"A lower-priced HD product was one of the key objectives for TiVo for fiscal 2008, and we are pleased to see it to market well ahead of the Christmas season," she said.
Also bucking the downtrend in August were video game stocks, led by Activision Inc., up 13.9% to $19.49, and Electronic Arts Inc., up 8.8% to $52.94.
The gains came despite NPD Group data that suggested video game software growth at 11% in July, the most recent month available, was below the 15%-25% that analysts were predicting.
Better sales, though, could be just around the corner as hardware sales were booming, driven by the continued popularity of Nintendo's Wii and a $100 price cut for the Sony PlayStation 3.
Sony moved 159,000 PS3s in July, up from just 98,500 in June. Microsoft Corp. sold 170,000 of its XBox 360 consoles, and Wii moved a whopping 425,000 units.
According to Todd Greenwald of Nollenberger Capital Partners, 2.5 million Wii consoles have been sold this year, compared with 1.4 million for the XBox 360 and fewer than 1 million for the PS3.
Two of the many downside new-media movers last month were Imax Corp., off 7.5% to $4.66, and RealNetworks Inc., down 12.5% to $6.23. Both, though, received some positive Wall Street commentary.
RealNetworks struck a deal with Viacom Inc's. MTV for folding its Urge online music service into Real's Rhapsody to create RhapsodyAmerica, with hopes that the beefed-up entity will be better able to compete with the iTunes-iPod juggernaut from Apple Inc. Verizon Wireless is the pair's U.S. wireless partner.
"RealNetworks is an inexpensive stock, with limited downside, providing an opportunity for patient investors," said Frankel, the Canaccord Adams analyst. Frankel has a "buy" rating and $12 target on Real.
On Friday, Pacific Growth Equities analyst J. Derrick Wood raised his rating on RealNetworks from "neutral" to "buy," citing a recent sell-off and the Rhapsody deal.
Imax has been a battleground stock for years, though late last month Roth Capital Partners analyst Richard Ingrassia said shares might have bottomed. He upped his target price to $6.
"Widespread negativity" surrounding the stock will be replaced by confidence in a second-half 2007 slate that "looks promising," he said. The stock gained some ground late in the month.
But Susquehanna Financial Group analyst Michael Kelman disagrees. He said that, while Imax management has acknowledged 2007 will be a difficult year, he believes that the problems might persist into next year.
He also said investors should pay strict attention to "Beowulf," due in November, because it will be the first movie released simultaneously in Imax 3-D and conventional 3-D. "The film will likely provide a good comparison of the two competing projection technologies, something that could help to prove (or hurt) Imax's pitch to the exhibition community," Kelman wrote in a research note.
Meanwhile, Netflix Inc. trended lower for much of August before a late comeback helped it edge out a 1.7% gain for the month to $17.52. Its competitor, Blockbuster Inc., purchased Movielink last month, which Jefferies & Co. analyst Youssef Squali called "an incremental negative for Netflix" during the month. That was one sour note that weighed down the stock earlier in the month.
XM Satellite Radio and Sirius Satellite Radio got what some analysts considered good news from an unlikely source: a judge's rejection of a Federal Trade Commission attempt to block the merger of food chains Whole Foods and Wild Oats.
According to Stifel Nicolaus analysts, the ruling could have implications for the XM-Sirius merger because the judge took a broad view of the competition when looking at Whole Foods and Wild Oats, just as Sirius and XM hope that regulators will do when considering their merger plans.
Still, the two stocks went opposite ways as Sirius shares sank 1.3% to $2.97 in August while XM shares gained 8.9% to $12.47.
Internet bellwether Google Inc. saw its shares edge up minimally in August, with a 0.8% gain Friday to $515.25 contributing to the move.
During the pre-Labor Day week, RBC Capital Markets analyst Jordan Rohan argued that the recent market correction amid a global debt market crunch has created an attractive entry point in Google for investors.
In a report, he said the stock's valuation is approaching his "must-buy" range as long as Google's earnings growth remains uncorrelated with big macro-economic trends.
Rohan continues to rate Google at "outperform" with a price target of $560.
Georg Szalai in New York contributed to this report.