Little to leap about on Wall St. in February


The Nasdaq dropped 1.9% last month. Not bad, considering the dramatic plunge it took near the end.

New media was roughly in line with the broader markets, except for a few pockets of relative strength like satellite radio stocks.

XM Satellite Radio was up 1.1%, but Sirius Satellite Radio was down 1.1%. A muted showing for both, considering that they agreed to merge last month, a catalyst that investors and analysts had been clamoring for.

The real performance, though, came from WorldSpace Inc., the sat radio company offering service in parts of the world far from North America. Shares of that firm were up 5.4% last month on no important news and despite the fact that it has little revenue to speak of and few subscribers.

Analysts figure the problem with Sirius and XM is that their merger plans easily could go awry. Goldman Sachs analyst Mark Wienkes gives the merger proposal a 30% chance of approval by the Department of Justice and the FCC.

Miller Tabak + Co. analyst David Joyce downgraded XM from "buy" to "neutral" last week after XM reported quarterly earnings that included "a few items we are less than satisfied with." Among them: the company finished the quarter with less cash than expected and more debt, despite beating the analyst's revenue and loss forecasts.

But Joyce maintained his $18 price target on XM shares, which implies a healthy 25% upside for the stock.

Sirius also reported quarterly results last week, and Wedbush Morgan Securities analyst William Kidd, a longtime bull on satellite radio, reiterated his "buy" rating and $5 target. They closed the month at $3.65. The analyst is bullish on Sirius shares even though he places a less than 50% likelihood on a Sirius-XM merger approval.

At the tail end of last month, Sirius CEO Mel Karmazin appeared at a congressional hearing to make his case for government approval of a merger. The representatives focused on three concerns: pricing power, service of minority groups and sufficient programming diversity, Merrill Lynch analyst Laraine Mancini said.

Programming diversity, observers noted, seems an odd concern because the business model of satellite radio includes the serving of niche audiences to a degree that is not economically possible via traditional radio.

Meanwhile, one of the month's biggest new-media losers was RealNetworks Inc., which reported solid quarterly earnings but disappointing guidance, which helped to sink the stock 23.5% for the frame. The day after its earnings report, at least three analysts cut their rating on the stock.

Oppenheimer analyst Sasa Zorovic went from "neutral" to "sell," partially because of slowing growth at the company's Rhapsody subscription music service. Rhapsody added about 100,000 users during the fourth quarter, below its historical 150,000 average, Zorovic said.

"We believe the slowdown may indicate a lasting market preference for both music-as-a-download as well as end-to-end systems such as Apple's iPod and Microsoft's Zune," the analyst said.

Goldman Sachs' Anthony Noto kept the stock on Goldman's Americas Sell List and maintained his $9 price target on shares. They closed the month at $8.16.

But Cannaccord Adams analyst Steven Frankel calls RealNetworks a "buy" and has a $12 target price. "The diversified portfolio of the company's games, music and wireless assets are capable of creating consistent growth and expanding operating margins," he said.

Notable new-media winners for the month included Imax Corp., up 17.2%, TiVo Inc. (9.7%), Yahoo! Inc. (9%), Hollywood Media Corp. and THQ Inc. (6.3%)

TiVo had been on an upswing since announcing a deal with early last month for Internet-delivered movies on TV screens, and Yahoo! has been benefiting from the rollout of its Panama advertising platform.

Both stocks, however, took a turn for the worse toward month's end -- and into this month -- erasing a good portion of their February gains.

Nonetheless, TiVo earned itself an upgrade early last month at Maxim Group from "hold" to "buy," based on "limited downside risk," said analyst Mark Harding, and his assumption that TiVo will strike more partnerships with cable TV companies, such as it has with Comcast Corp. and Cox Communications, though neither of those relationships have yet to bear fruit for TiVo.