Netflix (NFLX) was the hottest stock a couple years ago, but Synacor (SYNC) will be the hottest stock of 2013 due to TV Everywhere. SYNC is set to make its biggest gains this quarter due to excitement over next year's huge TV Everywhere boom, and expectations for SYNC to report record quarterly results this quarter from the online holiday shopping boom! SYNC's biggest gains this quarter will come after SYNC reports 3Q results and 4Q guidance this month, but SYNC could make a huge run-up the week before its 3Q results!
Netflix (NFLX) yesterday gained $6.12 or 11% to $62.58 per share! NFLX reported their 2Q results and 3Q guidance on July 24th, and NFLX's 3Q EPS guidance was cut in half causing full year estimates to go from NFLX reporting a net profit to NFLX reporting a net loss. The next day (July 25th), NFLX fell $20.11 or 25% from $80.39 to $60.28. NFLX fell another 12.4% and bottomed on August 3rd at $52.81, down 34.3% from its July 24th closing price of $80.39, and has now bounced 18.5% from its bottom. NFLX is currently 22.2% below its July 24th closing price.
Synacor (SYNC) reported their 2Q results and 3Q guidance on July 25th. SYNC's 3Q revenue guidance was $2.25 million below expectations, but SYNC kept the same full year revenue and profit guidance. The next day, SYNC fell $3.85 or 30% from $12.96 to $9.11. SYNC then fell another 19.3% and triple bottomed on September 12th, 18th, and 19th at $7.35, down 43.3% from its July 25th closing price of $12.96, and has now bounced 3% from its bottom. SYNC is currently 41.5% below its July 25th closing price (for no fundamental reason).
NFLX stated that a major reason why their guidance was so weak was because they expected to be hurt by the London Olympic Games. SYNC, on the other hand, only reported weak guidance because they wanted to be conservative by excluding the Olympics from guidance. SYNC, unlike NFLX, benefited BIG TIME from the London Olympic Games - which was a watershed event for TV Everywhere and has set the stage for TV Everywhere to become a bigger craze in 2013 than social networks have been in recent years! It has also positioned SYNC for a potential HUGE 3Q earnings surprise, especially compared to the extremely low expectations priced into SYNC's current share price! Even if SYNC just meets revenue expectations of $28.34 million, NIA expects SYNC to explode $3.30 or 43.5% from $7.58 to $10.88 the day after 3Q results. (Most likely SYNC will close the day before 3Q results MUCH higher than $7.58, because smart investors will likely load up with SYNC like crazy during the week prior to 3Q results.)
NFLX is only down 22.2% since July 24th when their 3Q EPS estimates were cut in half and they are now expected to lose money this year. SYNC is down 41.5% since July 25th when they are still expected to make the same full year profits. SYNC's $2.25 million weaker than initially estimated 3Q revenues will only lower full year revenues by 1.8%, allowing SYNC's full year revenues to still be within their guidance range of $123-$126 million. There is no way to justify SYNC declining 41.5% since July 25th, and SYNC will bounce back to $11-$12 very quickly in the weeks ahead.
No matter how strong SYNC's 3Q results are, SYNC's 4Q results will be a lot stronger due to the holiday shopping season. Internet portal companies have been soaring in recent weeks with online display advertising rates expected to explode in the 4Q due to the holiday shopping season. Nearly all online media companies currently have a huge backlog of display ad buys, because of the November elections.
Online retailers will be battling it out for customers this quarter by spending heavily on advertising, but there simply isn't enough ad space available for them. SYNC's direct national display ad clients have been receiving much better results on SYNC's portals than they do on other portals like Facebook (FB) and AOL Inc. (AOL). A perfect storm is ahead for SYNC's RPMs to explode in the 4Q, and SYNC's share price will explode after SYNC's 3Q results and 4Q guidance coming this month - with SYNC likely to blow away the extremely low expectations people have with SYNC at $7.58 per share!
SYNC is a rapidly growing online media giant, with ad impressions up 74% year-over-year to 10 BILLION last quarter! SYNC will benefit from the online holiday shopping boom more than any other company. NFLX is a subscription service. While SYNC generates subscriber based revenues that were unexpectedly up 10% in the 2Q vs. the 1Q, SYNC's biggest booming business is their display ad business - which reported 2Q revenues that were 17% above the 1Q.
With NFLX currently up 3.8% from its July 25th closing price of $60.28, SYNC clearly deserves to currently be at least 3.8% above its July 26th closing price of $9.11 - or trading for a minimum of $9.45. SYNC bounced to $10.88 after its July 26th decline and closed at $9.65 the day before 'its lock-up expiration. Now that the lock-up expiration is 7 weeks behind us, if SYNC just meets 3Q expectations it will bounce to $10.88 the day after 3Q results, and if SYNC misses expectations it will still bounce back to between $9.11 and $9.65, in NIA's opinion, due to SYNC's expected record breaking 4Q that has just begun!
SYNC is almost risk-free at $7.58, but with astronomical upside potential. NIA sees no possible way that SYNC's 3Q numbers can possibly disappoint, because expectations are extremely low - but NIA has good reason to believe that SYNC received a huge unexpected boost from the Olympics that will shock Wall Street!
Check out future financial estimates for both NFLX by clicking here and SYNC by clicking here.
NFLX is expected to generate 2012 EBITDA of $137 million with EPS of -$0.12. NFLX is expected to generate 2013 EBITDA of $249 million with EPS of $0.94. NFLX is expected to generate 2014 EBITDA of $306 million with EPS of $1.82.
SYNC is expected to generate 2012 EBITDA of $12.1 million with EPS of $0.14. SYNC is expected to generate 2012 EBITDA of $23.4 million with EPS of $0.35. SYNC is expected to generate 2014 EBITDA of $31.9 million with EPS of $1.12.
NFLX is currently $62.58 when they are expected to report a 2012 EPS loss of $0.12, and SYNC is currently $7.58 when they are expected to report a 2012 EPS profit of $0.14. SYNC's 2013 EBITDA is projected to grow by 93.4% from $12.1 million to $23.4 million, while NFLX's 2013 EBITDA is projected to grow by only 81.8% from $137 million to $249 million.
NFLX currently has an enterprise value at $62.58 of $3.062 billion vs. SYNC's enterprise value at $7.58 of only $174.74 million. With NFLX projected to generate EBITDA in 2013 of $249 million, NFLX's enterprise value is now 12.30X next year's EBITDA. If we value SYNC with an enterprise value of 12.30X their projected EBITDA next year of $23.4 million, SYNC's enterprise value will be $287.82 million + $29.92 million net cash position = market cap of $317.74 million.
Divide an enterprise value of $317.74 million by 27 million shares outstanding, and SYNC should currently be trading at $11.77 per share. Therefore, if SYNC meets 3Q expectations of $28.34 million, NIA expects SYNC to close the day after 3Q results at $10.88 per share and finish October at $11.77 per share.
NIA is not an investment advisor and is not making any target prices or financial projections. Never invest based on anything NIA says. Always do your own research and make your own investment decisions. NIA never recommends to buy or sell any stock.
Disclaimer: NIA currently owns 486,035 shares of SYNC. NIA intends to sell these shares in the future and can do so at any time. NIA reserves the right to add to its SYNC position at any time.
NIA is not an investment advisor. This email is not a solicitation or recommendation to buy, sell, or hold securities. Never make investment decisions based on anything NIA says. This email is meant for informational and educational purposes only and does not provide investment advice.
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