Jupitermedia: Earnings Miss & Stock Photo Issues (JUPM, GYI)

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Jupitermedia Corp. (NASDAQ:JUPM) shares gapped down significantly with what looks to be new 52-week lows, although it appears the shares are back above that low.  Shares closed at $6.79 yesterday ahead of earnings and shares hit $5.25 right after the open. The company posted $0.02 EPS diluted after including option charges of $0.01 and revenues were $34.7 million.  Estimates were $0.04 EPS and $36+ million in revenues.  Revenues from Online Images increased from $26.8 million to $27.4 million, while revenues from Online Media decreased from $8.2 million to $7.3 million.

Frankly, it is at least refreshing to see a company be honest about the current trends in stock photos.  If they are honest enough, well that is another topic but this at least addresses the compression of the value here and the trends that are coming into play upfront instead of the company trying to explain how it didn’t get it 6-months from now.  This should actually create more and more future writedowns to the value of goodwill and intangibles, and that won’t be good for Jupitermedia with the state of its balance sheet now. 

Getty Images (NYSE:GYI) was the one we felt had the most to lose, partly because they were the largest pure-play in stock photos and partly because the company hasn’t been as forthcoming about the future of these businesses even after it has made recent acquisitions to try to stave off some of the onslaught.  The wiki-model is too powerful here for this sort of business.  It will probably continue to make money and it will have a solid place in many copyright enforced venues, but much of its business will face severe margin compression.  This is an overly simplified explanation for a highly complex issue, but it is what it is.

Here are Alan Meckler’s quotes regarding the trends in the stock photo sector: "Despite a challenging period for the stock photo industry, our Jupiterimages division had some bright spots in the second quarter and for the first six months of 2007. Our Rights Managed category experienced over 30% growth for the first six months of this year compared to the same period of 2006. In addition, our JupiterimagesUnlimited high level royalty-free subscription offering grew over 200% for the first six months of 2007 compared to the same period last year. On a sequential quarterly basis, operating income for our Jupiterimages division increased from $8.6 million for the three months ended March 31, 2007 to $9.2 million for the three months ended June 30, 2007. Due to the evolution taking place in the stock photo industry, we are currently focusing our direct sales team to further emphasize our strengths: sales of Rights Managed images and JupiterimagesUnlimited. We have also initiated a rigorous review of our operating expenses that we expect will result in annual expense reductions of $2.0-$3.0 million on a prospective basis starting in the third quarter of 2007. Additionally, we have also identified opportunities to streamline various capital projects and content production that we expect will result in a reduction of over $3.0 million in annual cash expenditures. Combined, this restructuring is expected to improve our annual after-tax cash flows by approximately $4.0 million and possibly more."

No one is going take this report well in its entirety, and the stock is seeing the punishment for it.  But it is at least a step in the right direction.  This industry is rapidly changing and changing faster than a mere writeup here can address in a few hundred words.  Jupitermedia’s prior 52-week trading range is $5.45 to $10.48.  At least it owns the Internet.com domain name and is entering new operations with venues such as MediaBistro.com.  Things are bad, but they could have been much worse.

Jon C. Ogg
August 9, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.