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Why AirMedia Group Inc. Stock Flew Higher Today

By Steve Symington - May 19, 2015 at 3:43PM

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Is AirMedia's pop meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of AirMedia Group (AMCN) were up 12.5% as of 2:30 p.m. Tuesday after the Chinese out-of-home advertising platform company reported better-than-expected unaudited first-quarter results.

So what: Net quarterly revenue fell 4.4% year-over-year to $61 million, but exceeded the upper end of AirMedia's previous guidance by $4.3 million. That translated to a net loss of $5.7 million, or $0.10 per American depositary share. AirMedia's adjusted earnings before interest, taxes, depreciation and amortization also narrowed to a loss of $317,000, an improvement over the $422,000 adjusted EBITDA loss it saw this time last year. For that, AirMedia investors can thank the divestiture of two unprofitable product lines. Meanwhile, AirMedia saw a decrease in revenue from its gas station media network, as well as larger depreciation of LED screens installed in gas stations.

"As you know, we endeavor to transform into a leading in-flight and on-train Wi-Fi operator in China," added AirMedia CEO Herman Guo. "We would like to capitalize on the sale of our advertising business at a much more attractive valuation to companies in China so that we can focus our resources on the exciting Wi-Fi business."

Now what: AirMedia has secured an agreement with Shenzhen Liantronics to sell a 5% equity interest in its advertising business for RMB150 million (or roughly $24.2 million) in cash. And after it restructures its advertising business per the terms of that agreement, it intends to sell the remaining equity interest "in the foreseeable future."

Guo also noted traction in the on-train Wi-Fi business, including obtaining "exclusive rights to install and operate Wi-Fi systems on the ordinary trains operated by Shanghai Railway Bureau and Jinan Railway Bureau.

Nonetheless, given AirMedia's ongoing transformation and continued losses, I personally prefer to watch its progress from the sidelines. That might mean missing out on some short-term gains if AirMedia successfully divests its entire advertising business and continues to gain traction in the Wi-Fi markets it so covets. But given the risks of hiccups along the way, I have no problem waiting to make a move until AirMedia can prove it's capable of sustained profitability.

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