Commentary: Bottom drops out of Showbiz 50
Index finishes worst quarter everClick here to view chart
The quarter was humming along uneventfully for media stocks, then they fell off a cliff.
The Hollywood Reporter Showbiz 50 -- established in early 2006 -- finished its worst quarter ever Tuesday, down 19%, leaving the index hovering just above historic lows.
The worst performers during the quarter mostly were new-media companies, including the No. 1 decliner, Sirius XM Radio, off an astounding 70%.
A couple of gaming stocks also brought up the rear as THQ and Take-Two Interactive Software were down 41% and 36%, respectively.
And perhaps the most surprising from among the Showbiz 50's worst performers were Google, down 35% during the quarter, and Apple, off 32%.
Apple plunged 18% on Monday alone as lawmakers fiddled with -- but didn't pass -- a mind-boggling $700 billion bailout of U.S. financial institutions.
The company had the additional burden of having to fend off some downgrades. If the economy remains weak, the theory goes, why should investors expect consumers to pony up their hard-earned cash for new iPods, iPhones, computers, Apple TV set-top boxes or even song and video downloads at the iTunes Store?
Kathryn Huberty of Morgan Stanley, especially concerned about computer sales, slashed her price target on Apple from $178 to $115, and shares quickly sunk under that threshold. On Tuesday, they closed at $113.66.
That Take-Two shares had such a dismal quarter isn't a surprise, since the stock entered the quarter at a price inflated by a buyout offer from Electronic Arts. But that offer recently was pulled.
But none of the major video game stocks behaved well, including EA, down 17% to $36.99 in the quarter.
"THQ and Take-Two were battered by the loss of consolidation as a theme," says Steve Birenberg of Northlake Capital Management.
While video game sales remain robust, growth is decelerating, he says. "This is a momentum-driven group, so any sign of slowing is an excuse for traders to sell and long-term investors to realize profits," Birenberg says.
On Monday, Wedbush Morgan Securities analyst Michael Pachter lowered his price target on EA from $66 to $53.50. And he says he still predicts that EA eventually will buy Take-Two, just at a price of under $26 per share, while Take-Two, for now, apparently isn't settling for that. Shares of Take-Two finished Tuesday at $16.40.
Dish Network, down 28%, was another big loser in the quarter. The stock was no star prior to Monday, then it crashed 18% that day, the catalyst being that AT&T said it will partner with DirecTV at the end of January when its partnership with Dish expires.
"DirecTV now has bundling agreements with AT&T, Verizon and Qwest, effectively shutting Dish out of the big telco channel," says Kaufman Bros. analyst Todd Mitchell, who predicts that the stock will climb to $32 in the next year. DirecTV closed at $26.18, up slightly during the dreadful third quarter.
As for Showbiz 50 gainers -- of which there were only 14 -- Live Nation led all, up 54%.
That's pretty good considering that if the economy stays weak and unemployment rises, which many economists expect, consumers in droves could dump pricey concert tickets from their budgets.
TiVo was next best, up 19%. On Monday, TiVo announced a deal with software maker Nero for a package available this month that will bring the TiVo service and interface to PCs.
Investors also have been keeping TiVo shares afloat because a patent-infringement judgment against Dish could fill its coffers any day now. By how much remains a mystery, but estimates run from $100 million to more than $300 million, while TiVo's market cap was at just $748 million as of Tuesday.
The index's fourth-best performer, up almost 19%, was Netflix, which struck a deal during the quarter with Disney and CBS for streaming shows to subscribers. Netflix is set to announce today a similar content deal with Starz Play for about 2,500 movies, featuring such titles as "No Country for Old Men" and "Ratatouille."