Friday, July 28, 2006

CIBC defending Focus Media (FMCN)

- CIBC is defending Focus Media (NASDAQ:FMCN) noting that yesterday, FMCN shares declined 9% following a competitor s informal comments concerning the high-end of 07 Street estimates being potentially too high. Because this followed a company visit in China, and these comments were not written in a formal note, CIBC thinks this added to the confusion. They think any estimate concerns are overblown and would use weakness as a buying opportunity ahead of the quarter.

Notes they have been aware that one of the prominent analysts covering the stock based his Street-high revenue and EPS estimates on aggressive assumptions of a currency revaluation in 07. Excluding the RMB appreciation factor, they think these estimates could be in line with the rest of the Street.

Channel checks from our recent China trip suggest advertising growth remains robust, and Focus networks are becoming widely accepted as one of the strongest media formats for brand advertisers and media buyers. Meetings with top ad agencies buyers suggest that Focus continues to gain market share among budgets, and is only now becoming more mainstream, suggesting that pricing should remain strong.

Firm also believes that weakness in shares, down 21% yesterday, also had an indirect impact. BIDU sold off after reporting 2Q revenue that did not exceed Street estimates, even though revenues increased 180% y/y, and EPS exceeded on better margins. However, that stock had been trading at a 67X PE vs. 27X for FMCN, based on 07 estimates. Moreover, these two companies businesses are hardly related (search vs. outdoor advertising), while a significant portion of BIDU's revenue comes from local businesses, whereas FMCN's revenues are almost all national/multinational.

FMCN represents CIBC's best defensive name if the US economy were to see slower economic growth. Trading at 25x 07 EPS estimate, with 90% EPS growth forecast this year, and 70% growth next year, they believe investors are not fully "sold" on the Focus story and currently doubt existing Street estimates. Reits Sector Outperformer rating. Tgt remains at $74.

Notablecalls: One to watch today for a bounce.

1 comment:

Anonymous said...


On the corporate side, business innovations are brewing, and one example of what’s happening with GSBC patented technology is the emergence of the out-of-home television advertising network providers, currently being led by Shanghai-based Focus Media. Going beyond traditional venues of television, billboards and print media, Focus Media using GSBC worldwide patented technology has hit gold with a new advertising model for China: reach Office workers and upscale consumers by running continuous television ads on digital displays in the high-traffic buildings and retail outlets that they frequent. The model is not new but the technology is. The model, however, has not yet caught on in America. GSBC will now launch this technology for the entire universe.

The twist to this model in China has been Focus Media China built their company around this patented technology and they don’t own the technology. As a matter of fact the inventor sold it to GSBC and other than Net.Net Net TV located in Europe no other company has been licensed to use this technology. Net Net Net TV paid 1 billion dollars for the license in 43 major European countries. Net Net Net TV has started trading on the American exchange under the symbol ( and after the New Year will begin trading on the Dax in Germany. Focus Media, in June debuted on the NASDAQ and is trading at almost 70 dollars per share and nobody knows that this company will now be required to pay a licensing fee to GSBC or stop using the technology altogether.

FMCN also purchased its rival Target Media for cash and stock making them the largest media company in China. Making money has never been so easy with this model. It is very easy; you simply sell advertising time using GSBC smart screen technology allowing the advertiser to sell their product by placing their ads in the available 1200 30 second time slots. Focus Media now has more than 35,000 displays in its network covering more than 35 cities. In August, the company reported second quarter sales of US$14.6 million, a 128% year-on-year gain. The total number of 30-second ad slots sold on Focus Media's commercial location network in the second quarter was 3,057, with average advertising revenue per time slot (ASP) of US$4,573, versus 832 time slots and an ASP of $6,607 for the same period last year, and 1,998 time slots and an ASP of US$4,721 for the previous quarter.

Companies like Focus Media and Target Media can thrive only if GSBC allows them to use the patented technology. The real question for investors who have bought their stock is “will they let them license the technology”,

What's next for Focus Media? With GSBC going public in America what will the institutional investors do? Where will stock investors put their money? And what will happen to the price of FMCN. GSBC is launching the same business model on a global scale and the model is no different then what is already being used by FMCN. There is no secret about the business model

GSBC model is compelling because of the budding advertising market. "China's ad market is not efficient and is still evolving. There's a lot of wasted money and advertisers are not reaching their market, because newspapers, billboards, televisions are oversaturated." The real answer lies in the technology and how it is rolled out globally. GSBC will be public before the New Year and will take the world markets by storm. Stay tuned for more information about GSBC by going to its web site at or to its strategic alliance partner web site at . Obviously, there is much more to come!

Best Regards