New media the muscle in March


The recent meltdown of financial markets in China -- which then spread worldwide -- is practically a distant memory, considering the strength in U.S. markets in March. Many new-media companies are among those leading the recovery.

Shares of Apple Inc., Yahoo! Inc., TiVo Inc., Napster Inc., Netflix Inc. and some video game companies all outperformed the Nasdaq, which advanced 0.2% last month.

Yahoo! recovered from news that its relationship with AT&T might be in jeopardy and rose 1.4% to $31.29 last month, probably because of continued enthusiasm over its Project Panama search-advertising platform.

RBC Capital Markets analyst Jordan Rohan, who rates Yahoo! an "outperform" with a $34 target, said the company's share of the search-spend market quickly rose from 17% to 18.1% after Panama's release.

A.G. Edwards analyst Denise Garcia initiated coverage of Yahoo! with a "buy" and $35 price target, predicting Panama will help increase search ad revenue while noting Yahoo! already is ahead of Google when it comes to display ads.

A.G. Edwards last month also started coverage on video game makers Activision Inc., THQ Inc. and Electronic Arts Inc. with "buy" ratings, and the former two performed admirably, up 13.3% and 6.1%, respectively, whereas EA hardly budged. Take-Two Interactive Software rose 13.1% to $20.14 in March on the back of activist shareholders who ousted its CEO and took control of the board.

Apple, which received two upgrades and one downgrade from analysts in March, began shipping its Apple TV set-top box. While dismissed as a nonevent by some, ThinkEquity Partners analyst Jonathan Hoopes gushed over the possibilities.

Predicting it could add as much as $11.4 billion in market cap to Apple, the analyst said: "The Apple TV/iTunes combination could become as disruptive to legacy video purchase-and-consumption behavior as the iPod/iTunes combination has been to the traditional music business model."

Hoopes has a $120 price target on Apple, which closed the month at $92.91, up 9.8%.

TiVo shares shrugged off a downgrade from William Blair & Co. and rose despite assertions that Apple TV could crush the pioneer of the DVR, despite the fact that Apple TV isn't a DVR.

TiVo, observers said, might be on the rise because of an absence of sellers, who decimated the stock since EchoStar Communications Corp. last year convinced a judge to stay TiVo's patent-infringement victory pending appeal.
Shares rose steadily throughout March, gaining 8.2% to $6.35.

Netflix's business might also take a hit from competition with Apple TV, but it also rallied last month, to the tune of 2.9% to $23.19.

At the tail end of the month, Netflix CEO Reed Hastings said he had joined the board of Microsoft Corp., a move that immediately had pundits speculating that Netflix might someday deliver movies -- and/or video games -- digitally to Xbox game consoles.

Napster struck a deal to give its music service to AT&T customers, and investors cheered. The company also is a perennial takeover target. Napster advanced 6.4% to $4.14 last month.

WorldSpace, which is deploying satellite radio in places far from where XM Satellite Radio and Sirius Satellite Radio operate, has attracted a host of law firms bringing class-action suits against it after its shares plunged 81% since August. The pain for investors continued last month with WorldSpace dropping another 8.9% to $3.58.

The company reported adding 22,274 subscribers to its service for a total 199,105, a far cry from the combined 14 million who subscribe to XM and Sirius, which seek a merger.

Despite the positive catalysts that a combined XM-Sirius would enjoy, both companies fell last month, XM by 10% and Sirius by 12.3%, largely because investors doubt the companies will receive regulatory approval for their planned merger.

Merrill Lynch analyst Laraine Mancini still called Sirius a "buy" and has a $7 target. "The market is discounting Sirius subscriber upside," she said. "Our estimated cost synergies from a merger with XM contribute $1.40 per share in value."

Besides satellite radio, RealNetworks Inc. was a new-media loser last month. Its shares fell 3.8% to $7.85 despite three analyst upgrades.