New media holds ground in February
Microsoft bid injects Yahoo, while EA pumps Take-Two sharesCredit a couple of threatened buyouts and the hope that more consolidation might be in store for keeping new-media stocks afloat even as the broader markets behaved horribly last month.
The Nasdaq dropped 5% in February, the S&P 500 dumped 3.5% and the Dow Jones Industrial Averages fell 3%. Outperforming all of them was The Hollywood Reporter's Showbiz 50 index, which was off just 1.2% last month.
Preventing more pain for new media were Take-Two Interactive Software and Yahoo, both Showbiz 50 stocks and both in play as of last month.
Yahoo shares jumped 45% after Microsoft said that it wanted to buy the company, an offer Yahoo has rejected. Take-Two shares leapt 61% on an offer from Electronic Arts that also was rejected.
Perhaps in sympathy with Take-Two, video game stocks in general outperformed broader markets in February, with Activision shares up 5% and THQ advancing 4%. Shares of Take-Two's hopeful acquirer EA, though, fell 3%.
Wedbush Morgan Securities analyst Michael Pachter, who issued a mea culpa for not recommending shares of Take-Two before the buyout offer, reiterated his "strong buy" rating on EA and $66 target, 40% higher than its February closing price of $47.29.
His target does not take into account a takeover of Take-Two, though if the smaller company continues to spurn the offer from its much bigger rival Pachter expects EA to acquire Take-Two shares on the open market.
Citibank analyst Brent Thill is more bullish, slapping a $69 target on EA shares, and he calls EA's $26-per-share bid for Take-Two "strategically sound." Shares of Take-Two closed the month at $26.50, suggesting Wall Street's confidence that Take-Two will get a better offer.
More bullish still is BMO Capital Markets analyst Edward Williams, who has a $70 target on EA shares.
"EA is well positioned to exploit the growth trajectory within interactive entertainment," Williams said.
As for Yahoo, Microsoft's offer last month was worth $44.6 billion, and many analysts think Yahoo will not be able to resist a sale given its long-sinking stock price amid perceived mismanagement. But the price tag could rise.
Yahoo shares finished February at $27.78, and the company signaled it would not accept an offer of less than $40 a share.
"We continue to recommend Yahoo shares, as we believe investors are likely to speculate on how high a revised bid could go," RBC Capital Markets analyst Jordan Rohan said.
Also trading higher in February were Netflix, up 26%, and EchoStar Holdings, up 37%, the latter being a two-month-old company that was split from Dish Network.
EchoStar reported a solid quarter -- the first quarter it ever reported since its split from Dish -- and Netflix raised guidance.
"Reduced online competition from Blockbuster seems to be carrying over into 2008," said Utendahl Capital Partners analyst Alden Mahabir, who raised his target to $29 even as shares closed the month higher, at $31.58.
Citigroup's Tony Wible is more bullish, setting a $35 target, also noting that a price hike at Blockbuster has reinvigorated Netflix's business.
Some new-media leaders to the downside in February included Google, off 16%, Apple, down 8% and DivX, off 31%.
DivX said in late February that it is shuttering its Stage6 community-video Web site, having failed to find a buyer, and the stock tanked.
Cannaccord Adams analyst Steven Frankel sees the downdraft as opportunity, as he predicts the shares will advance to $20 in a year, up from the $9.83 it closed at in February.
The closure of Stage6, he said, "positions DivX as a pure intellectual-property licensing play, but slightly impacts earnings per share."
DivX technology is in many DVD players and it also is used in the distribution of online video.
And, as has been the case often since last February, when the two decided they'd merge, shares of XM Satellite Radio and Sirius Satellite Radio were losers during the month, with the former off 5% and the latter down 11%.
Wall Street hates indecision, and there has been plenty surrounding the Sirius-XM merger, with the pair awaiting government approval for more than a year now.
One of the most vocal supporters of the deal is CNBC's Jim Cramer, who has taken to naming on his "Mad Money" TV show the members of Congress who object to the merger and those who have taken money from the NAB, which represents traditional broadcasters.
On Friday, Cramer told Representative Gene Green, a Democrat from Texas who is against the deal, that an XM-Sirius merger wouldn't be "anything close to a monopoly."
Green countered that he sees no difference between a Sirius-XM hookup and a DirecTV-Dish combination, which he would also object to, if those two satellite TV companies decided they'd like to merge, as some pundits speculate is the case. He even acknowledged that if XM and Sirius aren't allowed to merge, one or both could go bankrupt.