By Rick Aristotle Munarriz
March 19, 2008
Recommended (5)
It's great to see Focus Media (Nasdaq: FMCN) get back on the horse it fell from three months ago, when it fell short of Wall Street expectations for the first time in its brief life as a publicly traded company.
The latest quarterly report from China's ad-serving giant, released Tuesday night, was a blowout. Revenue jumped 171% to $184.6 million. Net income climbed 46%, resulting in an EPS of $0.34 a share, or $0.52 after you back out stock-based compensation and acquisition-related items. It is on that adjusted basis that analysts were looking for just $0.48 a share in earnings on $168 million in revenue.
Obviously, in China there aren't the same concerns about the advertising market slowing down that there are here. In fact, ad revenue increased dramatically in all of Focus Media's primary sponsorship outlets, short of its in-store advertising network. And even that won't be a problem after the company acquired its chief cutthroat pricing rival in that niche -- CGEN Tech -- earlier this year.
Focus Media is everywhere. Its network of well over 100,000 LCD monitors is broadcasting video ads and content in high-trafficked areas. Whether it's a giant LED billboard on a shoreline-hugging boat or a collection of digital poster frames in elevators, Focus Media is rarely out of sight.
Everything seems to be going Focus Media's way. Even the recent lull in Chinese equity trading has worked to the company's advantage, because it has been able to acquire companies like CGEN and online advertising specialist Allyes that would have probably tried to go public in a kinder climate.
In short, there aren't too many publicly traded advertising plays in China beyond Focus Media and airport display advertiser AirMedia (Nasdaq: AMCN), until you start including the dot-com stars like Baidu.com (Nasdaq: BIDU), SINA (Nasdaq: SINA), NetEase.com (Nasdaq: NTES), and Sohu.com (Nasdaq: SOHU).
And set aside any preconceived notions that managing physical ad outlets is a business with razor-thin margins. Focus Media is looking to earn $280 million to $300 million in adjusted earnings this year on $900 million to $930 million in revenue. That's a jaw-dropping 30% to 33% in after-tax profit margins. Good luck finding that in a domestic advertiser.
Focus Media's outlook calls for it to earn $2.06 to $2.21 a share in adjusted earnings this year. Yes, growth will slow off the $1.57 a share it earned in 2007, but it's hard not to like Focus Media at roughly 20 times forward earnings.
The market, growth, and message are all too strong to ignore.
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