Jupiter Media Gaining Strength: The Long Case

The Stock Masters submit: If you've never heard of Jupiter Media (JUPM), you're in for a treat. This little gem is ranked third in the Digital Content provider sector next to Getty Images (GYI) and Corbis, drawing 65% of sales from stock photos.

Jupiter also ranked 12th on Fortune's 100 fastest growing companies of 2006, with EPS growth in the last 3 years of 374% and Revenue Growth of 48%. (See the full list).

Fortune's annual list includes companies that have the strongest three-year sales, profit and stock growth. Perhaps Jupiter didn't take the top spot due to its lackluster stock growth.

Jupiter hit a rough patch in May of this year. Their cash flow as of Q2 06 is around $20 million, not bad considering the last two years they've been on an acquisition spree, buying up a large number of stock photos, illustrations, music, and video content - comparable to an Imelda Marcos shoe shopping spree. The acquisitions have caused the last 2 quarters to be less than stellar - and near-sighted investors that aren't looking past the next quarter are scared straight. Jupiter's share price has dropped 53% in the last 52 weeks.

And that's one of the things we look for here at the Stockmasters: A solid company that's taken a beating over news that, honestly, could have been much worse.

Another reason investors are feeling a bit cagey about Jupiter Media is the worry that increased competition from low-cost "micropayment" stock photo websites could hurt the traditional photo stock industry. In the Q2 conference call, CEO Alan Meckler mentioned that Micropayment sites could hurt royalty-free image sales, but noted that Jupiter has an investment in a Micropayment site.

Personally, I doubt that Mr. Meckler is really concerned about micro payments right now - and you shouldn't be either.

Micropayment sites have trouble securing high quality images because of the costs associated with shooting these images. Typically, they charge $1 or less to download a low-resolution image, returning a portion of that to the photographer. If you don't need a lot of material this could be a viable solution, but serious customers know that nothing attracts eyes like the perfect, high quality image. Micropayment sites have trouble acquiring high quality image stock because of the costs associated with shooting those images.

Micropayment sites aren't huge content clearing houses like Getty, Corbis or Jupiter, so finding the perfect photo/video/jingle to fit with a marketing campaign can take a lot of work. Don't buy into the hype - I've been hearing about Micropayments for everything from literature to music to art for five years now, and it hasn't happened yet, and I don't see it happening anytime soon.

Corbis is privately held and Getty has already matured - smart investors are starting to look at who will take a piece of Getty's 2005 $733.7 million in revenue.

Jupiter is starting to attract bargain hunters looking to get in low, notably on September 8th when they hit a one-month high. Stay tuned for more good things to come.

Article written by Eric Cheshier.

Disclosure: The author was long 175 shares of JUPM at the time this article was posted.