Media, Tech Stocks Show Strength
By CONOR DOUGHERTY
It’s been a rocky ride, but six months after the Sept. 11 attacks many of L.A.’s stocks are doing just fine.
Powered by strength in the fundamentals of a number of technology, media and homebuilding companies, the Los Angeles Business Journal Index of 200 publicly traded companies has seen a 7.3 percent increase in since Sept. 10.
The LABJ gain outpaced the performance of the S & P; 500, which was up 5.6 percent as of March 13. At its lowest point, in the days immediately after trading resumed following the attacks, the LABJ index traded 14 percent below its Sept. 10 level.
Led by a handful of dot-coms that have re-emerged with upbeat earnings and re-jiggered business models, eight of the 25 biggest gainers have roots in the Internet.
Hopes of a rebound in the slumping advertising market helped a surge in media stocks, with five among the top 25. The region’s large homebuilders buoyed by historically low interest rates were also among the leaders.
Not all Internet and media companies enjoyed the ride, however. GenesisIntermedia Inc. (down 99.8 percent since Sept. 10) and Homestore.com Inc. (down 92 percent) were among the 25 biggest losers.
The lesson to be drawn, said Victor Hwang, chief operating officer at Larta, a Los Angeles think-tank for technology businesses, is that fundamentals appear to be returning to the fore of investors’ thinking.
“If you look at different sectors, it doesn’t jump out at you that any one sector did better than any other. That shows (investors are focusing on) whether a company is making it or not, not just whether or not a sector is hot,” he said.
Among the biggest gainers in the last six months were United Online Inc., formed following the merger of Internet service providers NetZero and Juno; Overture Services Inc. the renamed and refocused GoTo.com; Stamps.com Inc., Ticketmaster and ArtistDirect Inc.
Share prices for those firms jumped between 50 and 200 percent between Sept. 10 and last week. For some it was a change in business strategy, others just plain did better.
Take ArtistDirect. With the exception of its name the company bears little or no resemblance to its former self. Once a dot-com hybrid committed to building a talent agency, record label and Internet portal all-in-one, ArtistDirect has been rewarded by investors as it slashed Internet operations, left the talent business and formed a new record label with billionaire music mogul Ted Field as its new chief executive. The company, which executed a 1-for-10 reverse stock split in July, closed at $9.90 on March 13, up 65 percent from its Sept. 10.
United Online also did a 180. Having aggressively touted the benefits of its free ISP model, the business has been slowly directing customers to its pay services. It also slashed its reliance on ad revenue. For the three months ended Dec. 31 2001, the first full quarter operating as a merged company, 15 percent of United Online’s revenue came from advertising, as opposed to more than 90 percent in the like year-earlier quarter.
“A lot of these stocks were beaten down so much last year. As the market sees that they’re becoming serious about being profitable it has responded,” said Brad Jones, a partner at Redpoint Venture Capital.
Jones’ firm has a 7 percent stake in Stamps.com, which has seen its stock jump 80 percent since Sept. 10. The company, whose stock closed at $4.11 on March 13, has cut costs, seen its revenues climb and rolled out several new products. Its core business of selling stamps over the Internet as an alternative to meters remains intact.
Spurt of interest
Following the Sept. 11 attacks, some investors were so sure that the homebuilding sector was doomed they bet against it. “You had a lot of people coming out of Sept. 11 looking for a decline in the group, looking at it as an easy short,” said Scott Campbell, an equity analyst with Raymond James & Associates. “Surprisingly, housing activity has been resilient. I would attribute that to lower interest rates.”
Los Angeles-based homebuilders KB Home and Ryland Group Inc. saw share prices increase by 51 and 96 percent, respectively, in the last six months. Campbell said that since both companies derive much of their business from first-time homebuyers, lower interests rates were especially helpful in boosting the bottom line.
Then there was Calprop Corp., a Marina del Rey designer and builder of single family detached and town homes. Its shares took a hit after the Sept. 11 attacks and failed to recover when liquidity problems came to light. Since trading resumed Sept. 17, Calprop’s stock has fallen more than 32 percent, to close at 92 cents on March 13.
Local media stocks, broadcasters in particular, have seen their stock prices soar on account of upbeat advertising news.
Despite a slight dip in fourth quarter and 2001 earnings, the stock of Spanish-language television broadcaster Univision Communications Inc. is up 66 percent from Sept. 10, to $43 on March 13. The company has said it is on track to beat last year’s first quarter and also reported an increase in viewership for its new TeleFutura Network.
Radio giant Westwood One Inc., which reported an 8 percent decline in 2001 earnings and saw the departure of its chief financial officer, closed at $37.76 on March 13, up 46 percent since Sept. 10. The company said cost-cutting measures had led to a slight increase in 2001 cash flow.
Local scandals decimated several local stocks.
The biggest loser was GenesisIntermedia, a consumer products marketing firm that saw its stock drop from $17.03 to two cents between Sept. 10 and March 13. Genesis is the subject of a class action suit that alleges the company paid a financial commentator “for false, positive recommendations on CNN, CNBC and Bloomberg Television.” The company’s chief executive resigned and its stock has ceased trading on the Nasdaq.
Accounting irregularities have hit Homestore.com, once so dominant in the online real estate sector it was the subject of antitrust talks. Since Sept. 10 the company’s stock has fallen more than 90 percent, to close at $1.32 on March 13. Executives and board members have resigned, lawsuits have been filed, and just last week the online real estate company reduced its 2000 net loss by $31 million, to $146 million.
Venerable L.A. REIT National Golf Properties Inc. is also mired in controversy, as questions of a conflict of interest in its proposed merger with affiliate American Golf Corp. have drawn concern from investors. Since Sept. 10, share values have declined more than 70 percent.
The fates of two companies on the LABJ 200 were directly affected by the Sept. 11 attacks. OSI Systems, a Hawthorne-based manufacturer of optical and medical equipment, has seen its share price rise more than 500 percent, mostly because of its work in airport security systems. On the losing side International Aircraft Investors, a Torrance-based company that acquires aircraft for leasing and sales, has seen a drop off in business and has subsequently reduced its leasing rates. The company’s stock has dropped more than 70 percent to close at $1.40 last Wednesday.