A chilly January for new media

Apple, Google take big hit; vid game firms also stumble in frame

The Nasdaq lost 6.1% the first month this year, but The Hollywood Reporter Showbiz 50 index dropped 16.1%, with new media leading the downtrend.

Some of the biggest losers were the most valuable of the new-media companies, such as Apple (off 31.6%), Google (down 18.4%) and Electronic Arts (an 18.9% decline).

Goldman Sachs during the weekend removed Google from its "Americas Conviction Buy List," "due to its underperformance vs. the market year-to-date." The firm, though, maintained its year-end $700 target and "buy" rating. Shares ended the month at $564.30.

Apple's big swoon wiped out four months of gains, and the same goes for Google, while EA fell to depths not seen in 18 months, unusual considering video game sales were strong during the December gift-giving season.

"Game quality remains a concern for EA," said Kaufman Bros. analyst Todd Mitchell, reiterating his "hold" recommendation and $58 target on shares, which closed January at $47.37.

Wedbush Morgan Securities analyst Michael Pachter, on the other hand, rates shares a "strong buy, though he lowered his $72 target to $66 after the company reported quarterly results that were merely in line with expectations.

Few video game publishers seem to be benefiting from the popularity of the games they sell, judging from the performance of their shares.

THQ, which issued weak guidance last month, saw its shares plunge 36.1%. Activision dropped 12.9%, and Midway Games fell 20.7%. Take-Two Interactive Software, which spiked on the news that its latest version of "Grand Theft Auto" will launch in April, nevertheless ended the month 10.9% lower.

Take-Two also is earning rave reviews for its "BioShock" game, and it caught an upgrade to "equal weight" late last month from Lehman Bros. analyst Eric Handler, who upped his target to $19. Shares closed the month at $16.44.

Like with EA, analyst Pachter likes THQ after its big drop in price. He kept his "strong buy" recommendation but lowered his $35 target to $32. Shares closed the month at $18.01.

Yahoo also was a dismal performer in January, dropping 17.5%, though it rebounded with a vengeance in the first few days of this month courtesy of a $31 per-share bid from Microsoft. At month's end, Yahoo shares were at $19.18, and analysts were predicting they were cheap enough to spur interest in a buyout, a prescient call.

On Monday, Yahoo said it was abandoning its subscription music service and instead partnering with RealNetworks and its similar service called Rhapsody.

That news sent RealNetworks higher Monday, negating the stock's 4.3% loss in January.

Dolby was another loser in January, though at month's end, Canaccord Adams analyst Steven Frankel reiterated that it and DivX were his favorite new-media stocks.

"From a 30,000-foot view, strong unit sales of flat panel TVs, as well as solid PC sales in the holiday selling season, bode well for the IP-focused names like Dolby and DivX," he said.

Dolby shares sunk 13.7% in January, while DivX shares rose 1.8%.

Along with DivX, the rare winners last month included TiVo and satellite radio.

TiVo took a round-trip, sinking fast in the beginning of the month and rising dramatically at month's end, mostly because of its latest victory in the ongoing legal dispute with EchoStar Communications. Analysts, though, were split as to how important the ruling is to the share price.

After a 29% surge in one day, TiVo was downgraded by analysts at Friedman Billings and William Blair.

Mitchell at Kaufman Bros., however, reiterated his "buy" ranking and upped his target from $9 per share to $12. Shares ended January up 5.2% at $8.77.

As for satellite radio, Sirius advanced 5.6% in January, and XM was up 1.3%. Wedbush analyst William Kidd recommended late last month that investors buy shares of Sirius and sell shares of XM, on the assumption that there is less than a 50% likelihood the companies will get governmental approval for their planned merger.