Focus Media 4Q11 Preview: Interactive LCD In Focus

Mar. 2.12 | About: Focus Media (FMCN)

Focus Media (NASDAQ:FMCN) is expected to report 4Q11 results this month. The Street expects the company to earn $0.61 per share on $225 million in revenue and guide $183 million in revenue for 1Q12.

In Q3, the company delivered a strong quarter with record high revenue:

  • Core net revenue: $196 million, +53% y/y and +18% q/q
  • Non-core net revenue: $14.6 million, +64% y/y, and +13% q/q
  • GAAP net income: $62.2 million, down 44% y/y but +45% q/q. The y/y loss includes one-time income of $79 million from the sale of Focus Media's internet business in 3Q11.
  • Non-GAAP EPS: $0.59, +69% y/y, and +34% q/q

The company continued to exhibit pricing power as the only dominant outdoor display advertising company in China. I note that LCD margin expanded 3 ppts to 79%, poster margin expanded 4 ppts to 42%, and in-store margin expanded to 63% from 36% a year ago.

Heading into Q4, investors should focus on the ramp up of the company's interactive LCD screens. At the end of 2011, the company is expected to introduce 40,000 interactive LCD screens and upgrade 60,000 LCD screens with Q-card sensors in seven major cities across China. The interactive LCD screen's ability to broadcast traditional video advertising and flash advertising that transform viewers into shoppers is attractive from an advertisers' perspective.

In addition, it will allow Focus Media to expand its topline momentum by capturing both marketing and promotion budget. 2012 will mark the start of Focus Media's transition into hi-tech advertising and repositioning from the mature stage back to the growth stage. According to management, the new interactive LCD screen is expected to generate $35 million or 5% of 2012e revenue.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.