Commentary: Media stocks take a July bath
Savvy investors able to soften the blow with new-mediaConsidering all the noise about a weak economy, July wasn't so terrible for stocks, though you wouldn't know it if you only looked at media companies.
While the S&P 500 and Nasdaq in July were off 1% and 1.4%, respectively, The Hollywood Reporter Showbiz 50 stock index was off 4.9%. Savvy investors, though, could have hid from the carnage among a number of new-media companies.
The biggest winner in the sector was Midway Games, the company whose shareholders benefited big time when media mogul Sumner Redstone was buying up a large portion of the company, only to see those gains evaporate in the past couple of years.
But shares of Midway surged more than 70% in July to $3.75, and the move has investors puzzled. So far it seems that the best guess for the suddenly bullish sentiment is that the company simply had a good month. In early July, for example, Midway released "Unreal Tournament 3," then launched MidwayArcade.com.
Later, at the E3 video game conference, Midway was talking up a planned Christmas release called "Mortal Kombat vs. DC Universe" that will feature Batman. While the game was first announced in April, investors might not have cared much until the latest Batman movie, "The Dark Knight," started busting down boxoffice records.
Other new-media gainers in July included Avid, up 30.1%, TiVo (24.5%), National CineMedia (20%), Netflix (18.5%) and DivX (12%).
Imax, another "Dark Knight" benefactor, moved 12.4% higher in July, and some experts think its run will continue. Merriman Curhan Ford analyst Eric Wold, for example, said the stock could go to $20 in the next three years. It closed out July at $7.69.
The fact that so many moviegoers are willing to pay a 75% premium for an Imax ticket, the analyst said, "is a clear indication that Imax is gaining both consumer awareness and market share even in this tough economy."
At the other end of the spectrum was a surprising 16.7% body blow delivered to shareholders of the newly minted Sirius XM Radio.
After 17 months of legal wrangling, the two satellite radio competitors finally merged in July, only to see shares of the combined company head dramatically south.
Investors, it turns out, weren't thrilled with the decision made by Sirius XM to raise cash, restructure debt and issue shares. Plus, some investors are figuring that satellite radio has a lot more competition with iPods and Internet radio than it had when the two first proposed their merger in February 2007.
Also on the downside in new media were Take-Two Interactive Software, off 10.8%, Google (off 10%), Apple (off 5.1%) Napster (off 4.9%), RealNetworks (off 4.1%) and Yahoo (off 3.7%).
One of the biggest new-media losers, though, was THQ, which shed 25.2% in July.
The video game publisher recently issued annual guidance that disappointed investors and encouraged three analysts to downgrade the stock. Among their concerns is the "Wall-E" game based on the Disney/Pixar film. While it sold 1 million units, that was short of more bullish expectations.
THQ also didn't thrill Wall Street by delaying the release of three titles: "Saints Row 2," "Bratz" and "Destroy All Humans."