The Street’s impressed: RealD’s share price is up about 20% in after-market trading. Investors already knew that things were tough for the 3D technology company in the quarter that ended in September. It said early this month that it will lay off about 20% of its staff.…
RealD ended up with a net loss, but the stock price is +5.2% after hours after the 3D technology company surprised the Street with help from its overseas expansion efforts. In the quarter that ended in March, …
RealD Lowers Financial Guidance After Fiscal Q2 Earnings Miss Expectations, Announces Expansion Of Business In China
PREVIOUS: It wasn’t a horrible miss, but it comes off of expectations that were already pretty low for the 3D technology company. RealD reported a net loss of $4.2M, down from an $18.9M profit a year ago, on revenues of nearly $55M, -37.5%. Revenues beat the consensus forecast for $50.5M. But the loss of 8 cents a share contrasts with the Street’s expectation for a 7 cent loss. Investors may be even more concerned about the company’s lowered guidance for the remainder of fiscal 2013: It says that it has “moderated expectations for growth” that reflect “slower-than-anticipated growth in headcount” as well as a shift in timing for “certain initiatives.” CEO Michael Lewis says that the quarter that ended in September presented “a very challenging comparison versus last year’s second quarter that included exceptional contributions from Harry Potter and Transformers.” He also told analysts that the Olympics hurt. But the company isn’t leaving investors empty handed. RealD reduced its outlook for operating expenses to as much as $100M from its previous forecast of as much as $110M. That “should help profitability somewhat,” B. Riley & Co analyst Eric Wold says. RealD also says that it repurchased about 2.4M shares in Q2.
Now that Big Media’s 2Q earnings season is over, the big question on Wall Street is: Did it give us any insight into the future? CEOs’ cheery talk about strong ad sales in TV’s upfront market, the expected bump next year from political ads, and the revenues coming in from online streaming services may be irrelevant if the economy sinks into a deep, new recession. CEOs say they see no evidence of trouble yet. The industry’s leading cheerleader, CBS chief Les Moonves, channeled his inner Buzz Lightyear last week saying that he has “every reason to believe that we will deliver strong results throughout the rest of the year, into 2012 and beyond.” Investors still sliced 6.3% off of CBS’ market value. The Dow Jones U.S. Media Index is down about 16% in the last month as traders anticipate cuts in ad spending, ticket buying, subscriptions — the works. If the pessimists are right, then the race is on: Which company will be the first to change its message from “people will buy media because they have cash” to “people will buy media because it helps them to forget their problems”?
Here are other themes from the latest earnings reports:
Jobs: Media companies still aren’t hiring. No one said that so baldly, but it’s there between the lines: CEOs talked more about financial engineering – cutting costs and returning cash to shareholders – than about spending to become more competitive. Time Warner recorded $24M in layoff-related expenses, quadruple the amount from the same quarter last year, while Viacom spent $14M, up from zero last year. Yet virtually every media company is repurchasing shares or increasing its dividend. The message? CEOs can’t persuade investors that the companies know how to make a decent profit from their cash, and shareholders want it back.
Pay TV: This was “the weakest (quarter) in the industry’s history,” says Bernstein Research’s Craig Moffett. Analysts were startled to see the largest cable, satellite, and telco companies collectively lose about 195,000 video customers. The cord cutters don’t fit the stereotype of well-to-do technophiles. Moffett says that “all the evidence” shows that a growing number of people – especially young adults — simply can’t afford pay TV. Dish Network seemed to confirm that thesis by saying that it will shift its marketing focus to upscale consumers instead of bargain hunters. With the U.S. market stalled, it’s easy to see why cable programmers want investors to look at their expansion efforts in growing markets overseas such as India, Russia, China, and Brazil. “It is the current momentum and potential of our international assets that present a meaningful, unique opportunity for us,” Discovery Communications CEO David Zaslav told analysts.
UPDATE: RealD Shares -14.5% In After-Hours Trading Even As CEO Michael Lewis Talks Up Prospects For 3D
UPDATE, 3:05 PM: The Street doesn’t seem to be buying CEO Michael Lewis’ claim that all’s well with RealD and 3D. RealD shares have lost 47.3% of their value from May 19, when co-founder Joshua Greer resigned as president, to the end of trading on Thursday. The stock will have its lowest closing ever tomorrow if it doesn’t improve from today’s after-hours trading price of around $15.75. Although Lewis says that “the economy’s under duress” causing consumers to second-guess the high 3D ticket prices, RealD will be fine if exhibitors and studios decide to charge less. “Our fees are locked for the term of the contract,” he says. He avoided answering a question about whether 3D tickets will typically account for between 40% and 60% of domestic box office — in June he said he didn’t see a trend when Disney’s Pirates of the Caribbean: On Stranger Tides and DreamWorks Animation’s Kung Fu Panda 2 opened close to that range. Lewis did say, though, that the numbers could improve as theaters have additional 3D screens and releases don’t open “on top of each other.”
PREVIOUS, 1:18 PM: The leading provider of 3D projection technology reported net profits in the June quarter of $9.4M, down 4.6% vs the same period last year, on revenues of $59.6M, down 7.7%. Earnings at 17 cents a share far exceeded the 4 cents that Wall Street analysts expected. But they also thought that RealD would end its fiscal 1Q with $78.9M in revenues.
UPDATE, 3:30 PM: Things were fine for RealD, until executives started talking. The company’s stock price initially jumped in after-hours trading following a surprisingly strong earnings report. That would be a welcome change for the company whose stock value has dropped more than 29% since mid-May. But investor sentiment quickly changed about mid-way through CEO Michael Lewis’ briefing where he scoffed at the notion that consumers are fed up with paying higher ticket prices for 3D. The stock price fell to 7.4% below Thursday’s $24.07 closing price. “I don’t think that two films a trend makes,” Lewis said referring specifically to the disappointing 3D sales for Disney’s Pirates Of The Caribbean: On Stranger Tides and DreamWorks Animation’s Kung Fu Panda 2. “I don’t see a trend. It’s a trend until the trend changes to something else.” He added that results for 3D films this year “will be all over the place, but the end result will be a good one.” RealD is especially optimistic about the performance of its screens outside the U.S. The international venues account for 49% of RealD’s locations, but 55% of its gross revenues. Lewis didn’t directly answer a question about whether weakening 3D sales in the U.S. might be an early warning of what will happen overseas.