29 March, 2009

Final Four is set, ready for CBS!

The grandest stage in College Basketball was once again a rousing success for television network CBS Corp (CBS). Year after year the NCAA tournament is filled with drama, action, heartbreak and incredible performances, just about everything a television network would want from one of its prime-time tv shows.

Now, although the later stages of the tournament this year lacked a glass-slipper boasting Cinderella, the games attracted an impressive audience, especially online. With the help of Akamai Technologies (AKAM), CBC was able to stream all the tournament games in the highest quality it had ever streamed the event before and the results were impressive. A few statistics from BusinessInsider (Link) show traffic up 57% year over year, and streamed content up 65% on the CBS website. Certain advertising opportunities, such as the "Boss Button" also showed impressive gains with 25% growth in clicks. In comparison, for the first days of the tournament CBS saw increased television ratings of 4%.

What does this all add up to? Well for North Carolina, UConn, Michigan State and Villanova, a chance to play on the biggest stage for a National Basketball Title. For shareholders of CBS, whose value has declined over 80% in 1 year, in the midst of the recession, operating losses and dividend cuts, the hope is for a continued spark from the tournament. However this spike has all but fizzled along with the market. Today's 13% decline has given back most of the gains made by CBS in the last 2 weeks.

With the economy still lurking in a grim down-turn and advertising being hard to come by, it is the major events that still attract audiences and advertisers and CBS has a tent-pole with March Madness. But, by the numbers, for my money the audience is moving online, and companies like content delivery network Akamai increasingly stand to benefit as higher-quality (read: more expensive) live streaming and content downloads build out an even more expansive user base in the years to come.

Disclosure: Author does not own any of the companies mentioned

23 March, 2009

US Treasury unveils details of bad-asset plan

It is almost a certainty that no one has been under as much scrutiny in recent weeks as Tim Geithner, but the Head of the US Treasury, with the complete backing of the Obama administration has finally unveiled a much talked about plan to rid banks of the toxic assets that plague their balance sheets. The sheer numbers are completely alarming, with the plan aiming to finance as much as $1Trillion in terrible and illiquid real-estate assets.

Between the lines however, is a well-thought out and highly detailed set of procedures, rules, guarantees and TARP money usages to allow both, the government to recoup taxpayers money and private investors to prosper in an economic and housing rebound. Using $75-$100Billion of bank bailout money the Treasury is setting up the Public-Private Investment Program, allowing private investment vehicles to purchase specific toxic assets from the books of major financial institutions.

The plan aims to do 2 things: Relieve structurally (for the most part) sound banks of the crippling illiquid assets and spur private investment in order to push forward an agenda of market participation and economic recovery. Banks with cleaner balance sheets will be able to invest and lend again, rely on core business to produce profits, and regain some much needed confidence across Wall Street and Main Street. Private investors, with government partnership, will be able to own these assets, with specific guarantees, in an effort to turn them into prosperous investments in the future.

Part 1: The Treasury as a mediator. The Treasury is not simple acting as a mediator in allowing private investors to talk to banks about purchasing assets, that much could've been done completely without the US government. What it is doing, The Treasury that is, is setting up a Legacy Loans Program to help facilitate the private investor-bank transactions. The FDIC (Federal Deposit Insurance Corp) will oversee this program and will guarantee, up to 6 times, financing for investors.

Part 2: The Treasury as a market-maker. The Legacy Securities Program portion of the unveiled plan will allow The Treasury to act as a market-maker for securities that have become so illiquid they are not longer actively traded. How do you sell a depressed asset if no one knows what it is worth and no one knows how they can buy it? This part of the plan aims to answer those specific questions.

So far, markets have responded very positively to the details of the plan, at mid-day the majors in the US were all higher by 4% (led by the financial sector up almost 7%), but only time will tell if this plan will work. Due to the nature of private investment, and the facilitation needed to create markets for illiquid securities the process will take time. So far though, in the early going, Traders are applauding the government's move to make private investors partners with the government in investing in these assets, and not simply making the taxpayer foot another bill to clean up balance sheets.

And for those psychological investors out there, the S&P has cracked 800 today.

12 March, 2009

Market Rally continues on Day 3 on Banking and Retail sectors

10 to 11% gains for the S&P, Nasdaq and Dow since the start of trading Tuesday as markets focused on positive news coming out of the banking and retail sectors. With the S&P up about 80 points (12%) since the 660s bottom, Traders must be wondering is it sustainable?

According to many in the banking community it just might be! Why? It's simple, profitability. After quarterly losses multiplying not contracting, increased write-downs and more government backed dollars, some of the biggest American banks by name have issued relatively strong operational statements. Citigroup (C) and Bank Of America (BAC), both of whom have seen share prices disintegrate before their very eyes over 15 months appear to have turned the tide of losses. Both companies have pre-announced profitability in the first two months of 2009 and both expect continued operations in the black.

What does that even mean? Well shares of both banks have rallied 70% and 90%, respectively, from most recent lows, and for taxpayers who now own a 36% stake in Citigroup, maybe there's a way out of that mess. But just a few days ago there was talk of Citigroup being replaced in the Dow Jones Index and its value as a "penny stock" weakening an already battered corporate reputation. Confidence in the banking sector, even the sliver that there is now, is crucial to returning people to the markets and jump-starting a cycle of economic expansion and price increases.

Can two months of operations at these banks be a real guiding light for the rest of year? It is of course premature to label the banks as stabilized and past their major losses, and in fact the market is full of Investors waiting for another shoe to drop, so market participants still need to exercise caution, for which quarterly results should provide additional clarity.

On the retail side, a sector that was labeled disastrous just weeks ago, has found itself well into newly renewed confidence after posting some surprising February numbers. Retail sales dropped 0.1% (up 0.7% excluding cars) over the month, which was better than the 0.4% expected by economists, assuring to some that some stabilization in this sector is occurring. This was on top of a revised January which saw an increase of 1.8% instead of the 1.0% estimate and following 5 months of Auto sales declines, January saw a slight uptick in that segment. Maybe its not as bad out there as every headline makes it out to be?

Who would think this market would be ripe for mergers and acquisitions? Roche (RHHBY) does, as it, after months of wheeling and dealing, finally found a friendly takeover number with Genentech (DNA) at $95 per share.

Markets, the economy and overall sentiment is still decidedly bearish which puts great scrutiny on any extended rally so expect some profit taking soon. At the very least, the S&P's ability to roar back past 700 is a psychological stabilizer for many traders, and given that there was talk very recently of the S&P earning multiples falling to the 5-8 range, in line with previous grave recessions, potentially pushing the index lower than 500, the 700 number is good to see. While there are no psychologists here, that is definitely reassuring.

Disclosure: Author owns C

06 March, 2009

Time Warner Watching the Watchmen numbers

The movie business is a convoluted animal. Not only is profitability difficult to determine, the corporate structure of studios and production partners, along with a notorious history of skewered accountability on percentage based contracts, makes the exercise painstakingly complex. Add to this the lack of pure-play movie studio stocks (most being owned by conglomerate corporate parents) and the one industry thriving in a recessionary environment is the one most investors can't grasp at.

Box office receipts in the US were a record in January of this year as going to the movies has become one of the cheaper forms of entertainment. An industry showing any kind of growth in this environment will get investors talking, and as March kicks off the Spring season for film the big name studios are shrouded from investment by corporate giants who have increasingly bigger problems of their own.

Warner Brothers is one such studio, with its parent Time Warner Inc. (TWX) struggling in the face of the recession to get substantial interest in many of its properties. Consumer spending declines are hurting the cable, broadband and print businesses as is advertising on its AOL Internet portal. Despite the incredible success of Warner Bros as a studio in 2008, highlighted by the $1Billion worldwide box office haul of The Dark Knight, Time Warner has been unable to carry any momentum as shares have fallen to $7. The move to spin off Time Warner Cable moves TWX into more of a content company in hopes of locking further shareholder value.

Warner Bros. is looking to continue its string of Hollywood successes with an adaptation of the most revered comic book of all time, Watchmen. A Hugo award winning piece of literary work, and one of Time's 100 best novels of the 20th century, Watchmen stands out as a giant amongst superheros in the comic world. The film looks to capture audience minds in the same sense that the Dark Knight did last summer, however its skew towards an older audience and its hard R-rating will likely mute massive commercial success. With Zach Snyder helming Watchmen, critics and fans have had mixed reactions, so it will be interesting to see the staying power and first weekend might Watchmen will carry.

For a film to attain profitability in today's industry the norm is likely to make 2-3 times its production budget. With Watchmen having a budget reportedly about $120Million and a heavy marketing campaign behind it, its take will likely need to be near $300Million for the film to make Warner Bros. any money. So will it? Yes and No, like everything Watchmen, shades of grey to each of its fascinating characters mirror shades of grey in the money trail. No less than 4 companies are a part of Watchmen the film. A very public lawsuit between Warner Bros. and 20th Century Fox (owned by News Corp (NWS)) cut Fox in on some of the box office tally. Warner Bros has partnered with Legendary pictures to finance some of the film, giving cuts of box office money away there as well, and on the International stage, Paramount Pictures (subsidiary of Viacom Inc (VIA)) is handling distribution overseas.

A complex slicing of the pie to say the least, seemingly leaving Warner Bros. out in the cold. But if the film proves successful with audiences, everyone's happy and Time Warner may just get the last laugh. Being the owner of DC Comics, TWX owns the Watchmen graphic novel, and as interest in the film grew, sales of reprints of the graphic novel grew exponentially. With no less than 5 DVD releases for Watchmen on the upcoming slate the decision has been made to profit, and profit frequently, on the one-off film that Watchmen should and will be.

Motion Comics of the Watchmen book, where panels are slightly animated and the story is read through voice acting, has already been released on disc. Following later this month will be the animated Tales of the Black Freighter disc, which includes the Watchmen pirate story within a story literary device. And finally, 3 versions of the Watchmen film, including theatrical, director and ultimate editions. Add to that several books, toys and other Watchmen accessories and you can see Warner Bros is treating this property like a studio tent pole film.

Will it all add up to growth? With revenues of $46Billion, its hard to imagine Watchmen making a serious dent to TWX even with half of Dark Knight's performance, however with the spin off of Time Warner Cable, TWX will become more of a content pure play, and while not simply a "movie studio" it has shown, of the major Hollywood players, to know its audience of late best with recent darker hits like "300", "The Dark Knight" and now "Watchmen".

So, as the Alan Moore and Dave Gibbons magnum opus consistently asks with graffiti engraved surroundings, Who Watches The Watchmen? In this case, certainly Time Warner.

Disclosure: Author holds no position in any companies mentioned.

02 March, 2009

$61.7Billion Quarterly Loss for AIG

Headline of the day comes courtesy of Bloomberg. (Link)

American International Group (AIG) has posted a record quarterly loss of $61.7Billion. Just an obscene number that emphatically punctuates a worldwide credit situation in complete disarray.

With more government support on tap ($30Billion to add to the previous $150Billion already received), AIG hopes to keep itself afloat until markets improve. A tall order to say the least, but if Investors offer any glimpse of the hope, they are bidding up shares of AIG. In a monumental twist on comedy, only in America, would the largest loss in history warrant a buying spike of 16%.

Disclosure: Author holds no position in AIG.