Earnings & Reactions

Monday down. Tuesday up. Wednesday down.

It may seem there is no rhyme or reason to the market, but
very often, there is. It is just on the counter-intuitive side.

The key to tracking earnings reports — and the way a stock
will trade afterwards — is the expectations for the company. Not your
expectations, but rather, the collective anticipation for a company’s reports.

That’s only the first step. Consider the stock’s prior
action. Some of the results may be anticipated well in advance of the conference



We won’t discuss Citibank or Kodak, both of which simply
disappointed. They missed revenue or earnings numbers or both, and simply got punished for it.

But let’s look at a few others: Why were IBM, Apple and
Intel’s better than expected numbers greeted so differently?

Let’s look at each:

IBM has been a serial disappointer, missing estimates
(warning: memory dump!) something like 8 of the past 11 quarters. When they actually beat, very few were
expecting it. The chart, however, suggests someone knew – the stock was flat
from the May lows, but rallied smartly the 2 weeks before earnings.


Yahoo is the polar opposite of IBM – a regular beat by a
penny outfit. When their earnings came in line with consensus, the reaction was
WHACK. No one likes to pay a 50 P/E for merely meeting consensus.


Rational? No. Understandable? Completely.

Then there’s HP. Its apparent that the good news was already baked in.

HP’s stock had a nice run on the announcement that Mark Hurd
was replacing Carly Fioina. The expectation became built in that would
reorganize the firm, cutting costs and slashing jobs. The stock rallied on his
appointment — but yawned on the actual announcement. The share price reflected
the re-org long before it was officially announced.


Similarly, see Intel’s report and subsequent stock action.
The robust sale of Laptops, especially in Asia, has been a bright spot for PC
makers. But this was widely known. Intel’s mid quarter conference call might
have set up investors to expect too much.


Finally, have a look at Apple. The expectations were that
iMac sales would slow in anticipation of a transition to Intel Chips; There was
also chatter about iPod sales being saturated.

All wrong:


These stocks demonstrate that owning (or trading) stocks during
quarterly reporting are very dependent upon 2 key elements: recent action in the stock,
and the consensus expectations for the company.

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Minor Metals

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Why is Movie Theatre Revenue Attendance Declining?

There’s been plenty of chatter about declining movie theatrical revenue attendance. You just know the MPAA is itching to tie this onto piracy somehow and thus get some favorable legislation.

Let’s nip this one in the bud, shall we? 5 6 7 factors are hurting theater attendance:

1) Social factors eroding theater environment (talking, cell phones, babies crying, etc.); 
2) Sacrificing long term relationships with theater-goers for the increase in short term profitability (commercials, no ushers, etc.);
3) Higher quality experience elsewhere (Home theater);
4) Declining quality of mainstream movies;
5) Easily available Long Tail content alternatives (Netflix, Amazon);
6) Price;
7) Demographics: Aging babyboomers simply go out to movies less.

While content quality has indeed worsened over the years, it shouldn’t be the main concern this Summer:  As of late, there have been a spate of movies which have been either well-reviewed (Batman Begins) or had good word-of-mouth (Wedding Crashers) or incredible special effects perfectly suited to the big screen (Revenge of the Sith or War of the Worlds).

So what else might be the source of declining theatrical fortunes?

Well, how about the movie theater-going experience itself? The adventure of heading to a cineplex is becoming a less and less pleasant form of entertainment. Many of the headaches involved have been painfully detailed by Bob Lefsetz’ readers (see their ordeals below).

Note that we are not even discussing content quality at this point.

Then there are the adverts. A recent L.A.Times article – Now playing: A glut of ads — points out that even studio executives were stunned by 15 minutes of commercials theatre goers had to endure after paying their 10 bucks:

"As head of production at New Line Cinema, Toby Emmerich is not your typical moviegoer. So when he wanted to see "War of the Worlds" the other night, his choice was between seeing the film in a theater with a tub of popcorn or watching it in a screening room at Jim Carrey’s house, with a private chef handling the culinary options. Despite this seemingly loaded deck, Emmerich opted for a real theater.

"I love seeing a movie with a big crowd," he says. "But I had no idea how many obnoxious ads I’d have to endure — it really drove me crazy. After sitting through about 15 minutes of ads, I turned to my wife and said, ‘Maybe we should’ve gone to Jim Carrey’s house after all.’ "

When DreamWorks marketing chief Terry Press took her young twins to see "Robots" this year, she said, "My own children turned to me and said, ‘Mommy, there are too many commercials!’ Now, when the lights go halfway down, I’m filled with dread. The whole uniqueness of the moviegoing experience is being eroded by all the endless ads."  (emphasis added)

So while the industry laments piracy, consider if you will why going to the theatre has become so much less enjoyable than watching DVD films on your own big screen in the comfort of your home theatre.   

The theatres have adapted Radio’s disasterous Hamburger Helper approach: Short term increases in profitability in exchange for alienating your core audience, who eventually seek out a more enjoyable substitute. Quite frankly, I’m astonished the film industry has (contractually)
allowed theatre owners to degrade their copyright protected product by
diminishing the experience so dramatically.

As Radio has so painfully learned, the end result is a big fat Buh-bye!

To a large degree, this is  a zero sum game: The theatre chains losses are Best Buys’ gain; Is it any surprise that high quality home sound systems and large screen TV sales have gone through a ginormous growth spurt over the past 5 years? Even as the lowest common denominator productions falter, Netflix (and its rivals) allow home theater owners to enjoy a Long Tail orgy of DVD content. 

Yo, theatre owners, when a segment of retail electronics called HOME THEATRE explodes in sales, that is your wake up call. You seem to have been oblivous, and missed the bell ringing.

Good luck getting the toothepaste back in the tube!


UPDATE: July 25, 2005 7:37pm
At Slate, Edward Jay Epstein explains the numbers behind decreased attendance on increased revenue. Fascinating stuff . . .


UPDATE II: August 30, 2005 12:07pm
A weekend NYT article, titled Summer Fading, Hollywood Sees Fizzle quotes an exec as blaming the quality of flicks:

"Part of this is the fact that the movies may not have lived up to the
expectations of the audience, not just in this year, but in years prior," said
Michael Lynton, chairman of Sony Pictures Entertainment, which had some flops
this summer, including the science fiction action movie "Stealth"
and the romantic comedy "Bewitched."
"Audiences have gotten smart to the marketing, and they can smell the good ones
from the bad ones at a distance."



Now Playing: A Glut Of Ads
The Big Picture
Patrick Goldstein
L. A. Times, July 12, 2005

Lefstz Letter
June 5, 2005
(complete sourcing below)

Summer Fading, Hollywood Sees Fizzle
NYTimes, August 24, 2005


Continue to see Lefsetz’ readers critique of the theater experience . . .


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