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Activision Blizzard Whiffs On Q4 EPS, Sales; Stock Sinks

Video game publisher Activision Blizzard ( ATVI ) late Thursday missed Wall Street’s targets for the fourth quarter and gave conservative guidance for the current quarter and full-year 2016. Investors punished Activision stock on Friday. In morning trading, Activision shares were down about 10% to about 27 on the stock market today . On Dec. 29, Activision stock hit an all-time high of 39.93. At least eight Wall Street analysts cut their price targets on Activision stock after the earnings report. The Santa Monica, Calif.-based company earned 83 cents a share excluding items on sales of $2.12 billion. Analysts polled by Thomson Reuters expected Activision to earn 86 cents a share on sales of $2.20 billion. On a year-over-year basis, Activision’s EPS fell 12%, and its sales slipped 4%. Activision was hurt by smaller-than-expected sales of “Guitar Hero Live” and “Skylanders” during the holiday quarter, as well as negative foreign-exchange trends, Benchmark analyst Mike Hickey said in a research report Friday. For the current quarter, Activision expects to earn 11 cents a share ex items on sales of $800 million. For 2016, Activision is looking to earn $1.75 in adjusted EPS on sales of $6.25 billion. Activision’s figures include its planned acquisition of King Digital Entertainment ( KING ), while current Wall Street estimates do not. Excluding King, Activision’s core adjust EPS guidance for the year would be $1.35, 21 cents below Wall Street consensus, Hickey said. “The company’s weaker-than-anticipated guidance was primarily attributable to the delay of (the sequal to action game) ‘Destiny’ and the general conservative nature of management,” Hickey said. He rates Activision stock buy, but he lowered his price target to 37.63 from 43.07. ‘Call Of Duty’ Helped Activision The underperformance of “Guitar Hero” and “Skylanders” was partially offset by the continued success of “Call of Duty: Black Ops 3,” Piper Jaffray analyst Michael Olson said in a report Friday. He reiterated his overweight rating on Activision stock but cut his price target to 39 from 42. “We still believe a history of conservatism suggests the outlook may prove low,” Olson said. “Activision has exceeded its original full-year revenue and EPS outlook, on average, by 19% and 7% from ’09 to ’15.” Excluding a tax benefit, Activision would have missed its earnings guidance for the first time in 10 years in the fourth quarter, Wedbush analyst Michael Pachter said in a report Friday. He maintained his outperform rating on Activision stock but lowered his 12-month price target to 40 from 47. Pacific Crest Securities analyst Evan Wilson said the holiday season proved “strangely difficult” for the video game industry. Activision, Electronic Arts ( EA ), GameStop ( GME ) and Ubisoft all disappointed with their recent earnings reports, he said. “This is supposed to be the sweet spot right?” Wilson said in a report Thursday. “What has become clear is that the breadth of successful games continues to narrow, and increases in competition can have a huge impact, especially on lower-quality or casual titles. This holiday likely fully transitions the sector from ‘buy the basket’ to ‘buy the slate,’ as releases don’t guarantee success.” Wilson maintained his overweight rating on Activision stock but trimmed his price target to 36 from 41. RELATED: Take-Two Interactive Software’s Games Show Staying Power; Q3 Beats Electronic Arts Falls On Mixed Q3, Weak Guidance .  

Comcast NBCU Aims For Film, Theme Park Synergies; Taking On Disney

Box office hits may slow in 2016 at Comcast ’s ( CMCSA ) NBCUniversal after a big run last year, but operating synergies between its film business and burgeoning theme park build-outs could be the gift that keeps on giving. Think Walt Disney ( DIS ), which a plucky Comcast tried to buy in 2004. Comcast instead pivoted and purchased all of NBC Universal from General Electric ( GE ) in 2011, getting cable TV networks, broadcaster NBC, a movie studio and two theme parks. Now a theme park rivalry is growing between Disney and NBCU as Comcast steps up investments in Florida and California and expands overseas as well. Comcast-NBCU in September acquired a 51% stake in Universal Studios Japan’s theme park in Osaka for $1.5 billion. It’s also building a $3.3 billion theme park in Beijing with local investors, slated to open in 2019. Comcast’s U.S. theme park attendance has climbed, owing to Orlando’s Wizarding World of Harry Potter and other projects.  In 2015, Comcast’s theme park revenue jumped 27% to $3.34 billion, pro forma for the Japan deal, in Q4 rising 38.6% and topping $1 billion in a quarter for the first time. Operating income rose 42% to $1.17 billion. Excluding Japan, Q4 theme park revenue still rose 15.6%. “Theme parks must now be viewed as a foundational element of the Comcast story,” Craig Moffett, an analyst at MoffettNathanson, said in a research report. Harry Potter, Volcano Bay Coming This April, NBCU plans to open a Harry Potter attraction in Hollywood. In 2017, it’s slated to open up a water park, Volcano Bay, in Orlando, Fla. On Comcast’s Q4 earnings conference call this month, executives confirmed the acquisition of 475 acres of land, for $130 million, in Orlando, near an existing theme park. “We have a lot of land to work with,” noted  NBCU CEO Stephen Burke on the call.  Aside from expanding its theme parks, Comcast will likely build more hotels, a growing revenue source. While a U.S. recession could slow park attendance in any given year, Comcast’s theme park business is less tied to big events than is broadcaster NBC, which gets periodic lifts from the Olympics, Super Bowl and election-year advertising. New blockbuster movies, as well as older movies,  provide grist for new attractions, since NBCU holds the intellectual property. Under Comcast, NBCU has added park attractions tied to its “Transformers” and “Fast & Furious” movies. More park attractions are on the way, analysts say, such as Reign of Kong and the Incredible Hulk Coaster. NBCU’s filmed entertainment revenue jumped 46% to $7.3 billion in 2105 thanks to the box office success of “Minions,” “Jurassic World,” “Furious 7” and “Fifty Shades of Grey.” The film unit’s operating income rose 75% to $1.21 billion. In 2016, NBCU has a weaker slate of films, analysts say, though new movies will come from its Focus Features unit, formerly USA Pictures. JPMorgan estimates film revenue will slide 33% in 2016, with operating cash flow also down. Reinvestments could spark a stronger 2017, when new releases will include the newest Mummy flick, “Mena,” as well as “Fast & Furious 8” and “Despicable Me 3,” according to BoxOfficeMojo.com. On Comcast’s earnings call, CEO Brian Roberts noted that the cable TV company has doubled the operating cash flow at NBCU since it took a controlling stake in 2009. Comcast’s free cash flow growth is lower than operating cash flow because it includes Comcast’s sizable investments in broadcaster NBC’s content, such as winning rights to broadcast the Olympics, plus theme parks. In 2015,  NBCU capital spending rose 13.5% to $1.4 billion. Higher Ad Rates, Fewer Viewers For NBCU Comcast bought its controlling stake in NBCU close to the bottom of the advertising cycle. NBCU has been garnering higher ad rates. However, broadcasters and cable networks in general face falling audience ratings and a dropoff in pay-TV subscribers. NBCU’s cable networks — including USA, Syfy, Bravo, E! and CNBC  – generated 70% of NBCU’s operating cash flow as of mid-2013. In 2015, the cable networks provided only 54.6% of OCF. “It’s hard to build a bullish story for Comcast’s mostly middle-of-the-road general entertainment networks,” said Moffett, though USA produced a hit in “Mr. Robot” in 2015. Theme parks churned out nearly 24% of OCF in 2015, up from 21% in 2014. Including Japan, theme park OCF could hit $2.2 billion in  2016.  By 2020, theme park contribution to NBCU’s total OCF could rise to 35%, analysts say. Disney on Tuesday posted results for the December quarter, its fiscal Q1, and analysts say its theme park and resorts business performed well.  U.S. park attendance rose 10%, with revenue growing 9.5% to $4.28 billion. Disney has been refreshing older attractions, such as Star Wars. In June, Disney is expected to open a park in Shanghai, its first in mainland China. In 2017, it’s slated to open an Avatar-themed park in Orlando. Like Comcast-NBCU, Disney seeks synergies between films and theme parks. “(With) Shanghai, Disney will have the opportunity to use the park to help exploit its considerable intellectual property portfolio, (and) the park may help open up the Chinese film market to more Disney releases in the future,” Omar Sheikh, a Credit Suisse analyst, said in a research report.  

Pandora Posts Q4 Earnings Miss As Listener Base Tumbles

Pandora Media ( P ) reported a fourth-quarter earnings miss after the close on Thursday as its active listener base fell, and as acquisition costs and other expenditures took a toll. Pandora stock dropped about 4% after hours. It had set a record low Wednesday but surged more than 8% during the trading day Thursday after a report that the company is in discussions about a sale. The streaming music leader is in a heated battle with rivals, including Apple ( AAPL ), Spotify,  iHeartRadio, Amazon.com ( AMZN ) and Google owner  Alphabet ( GOOGL ). “Building a business like we have is very difficult and we now have a huge lead and advantage that is incredibly challenging for new entrants to overcome. We are leading the disruption of a $17 billion radio advertising market,” said Pandora CEO Brian McAndrews on the call with analysts. “It is a generational opportunity to drive the future of music for years, if not decades, to come. We are confidently making the decision to invest now to fully capture that opportunity, which is why we are comfortable being temporarily EBITDA(earnings before interest, taxes, depreciation and amortization)-negative.” In October, Pandora bought Ticketfly for $450 million, vaulting the online music-streaming leader into the live-event and ticket-sales business in its bid to take on its rivals — the likes of Apple Music, Google Play Music and Amazon Prime Music. Pandora got final approval to buy Web-streaming service Rdio in December for $75 million. Through several agreements reached the past two years, Pandora is now aligned with music superstars including Justin Bieber, Lady Gaga, Taylor Swift and Adele. The company has inked deals with labels including Sony/ATV, Warner/Chappell, Universal Music Publishing Group, Songs, Atlas and Downtown Music Publishing. In December, Pandora announced multiyear licensing deals with ASCAP and BMI, two major trade groups that between them own the music publishing rights to 20 million songs. Pandora Listeners Decline Pandora has registered an all-time high of 10% share of U.S. radio listening, McAndrews said on the call. But the company also said its user numbers fell during the quarter. Pandora reported 81.1 million active listeners in Q4, down from the 81.5 million active listeners that the service posted in Q4 2014. In December, the online music company got a price target cut from Macquarie, which cited rising royalties and other costs for the Oakland, Calif-based company. “New royalty assumptions and increased costs bring our estimates lower,” wrote Macquarie analyst Amy Yong in a research note, in which she cut Pandora’s price target to 17 from 19. “Pandora has inked multiyear agreements with major labels in the U.S. covering 60% market share of all publishers. We estimate total content costs of $765 million in 2016, stepping up 10% per annum through 2020.” Earlier on Thursday, a New York Times report said that Pandora had held discussions about selling the company . After the news, Pandora stock shot up. According to the New York Times, Pandora is working with Morgan Stanley to meet with potential buyers. Pandora closed at 9.09 on Thursday, up 8.2%, but is down 53% since mid-October as Wall Street frets about how Pandora is withstanding growing industry competition and sluggish user growth. The company said 30% of revenue went to sales and marketing efforts in Q4 2015 vs. 26% in Q4 2014. Pandora now carries a market value of $1.9 billion, down from more than $7 billion two years ago. In December, the online music company got a price target cut from Macquarie, which cited rising royalties and other costs for the Oakland, Calif-based company. “New royalty assumptions and increased costs bring our estimates lower,” wrote Macquarie analyst Amy Yong in a research note, in which she cut Pandora’s price target to 17 from 19. “Pandora has inked multiyear agreements with major labels in the U.S. covering 60% market share of all publishers. We estimate total content costs of $765 million in 2016, stepping up 10% per annum through 2020.” The leading online music company posted a 9 cent per-share loss, swinging from an EPS ex items profit of 6 cents in Q4 2014. Analysts polled by Thomson Reuters had been expecting EPS ex items of 7 cents. Pandora reported Q4 revenue rose 25% year over year to $336.2 million, beating consensus estimates for $331.17 million. For Q1, Pandora guided revenue of $280 million to $290 million, up 6% year over year at the midpoint. The company guided an adjusted EBITDA loss of $65 million to $75 million. That compares to adjusted EBITDA of $43.8 million in Q4 2014 and $24.8 million in Q4 2015. “We enter 2016 with an enhanced portfolio of assets, cost certainty and substantial competitive advantages. We’re invested in the long-term and I could not have more conviction about the ability of Pandora to lead the future of music,” McAndrews said. Pandora stock has sagged since the June launch of Apple Music — a service combining paid subscription music streaming with a 24/7 live global Internet radio station. While Pandora remains the Internet streaming leader, its market share is falling as competition grows.