NEW YORK, NY – Shares of New Frontier Media Inc. (Nasdaq: NOOF) climbed Tuesday following an analysts upgrade of the stock from “Hold” to “Buy” in anticipation of international expansion by the Boulder, CO-based adult entertainment company.In addition to upgrading his rating of the stock, analyst Richard Ingrassia of Roth Capital Partners raised his target price for the stock from $10.50 to $12, writing in a client note that “while competitive concerns and pricing pressure remain high, New Frontier’s more diverse library should provide relative stability in the long term and opportunities for international growth,” according to the Associated Press.
Ingrassia added that it was likely New Frontier will expand internationally following the company’s acquisition of adult entertainment producer/distributor MRG Entertainment Inc.
“Because MRG provides an established international presence and better visibility into consumer tastes in European territories, New Frontier will now more confidently acquire foreign distribution rights from its existing stable of U.S. producers,” wrote Ingrassia.
The analyst also noted that the company had shown the ability to weather downturns in the economy, writing that “In fact, buy rates tend to improve during periods of economic uncertainty.”
New Frontier shares rose from $8.84 to $9.29 Tuesday, an increase of just over 5-percent, during afternoon Nasdaq trading.
Meanwhile, the outlook for one of New Frontier’s primary competitors in the adult pay-per-view TV market, Playboy TV, appears considerably less bright, according to an article published Monday on ChicagoBusiness.com.
Last year, sales for Playboy’s domestic television sector fell by 16-percent which, according to ChicagoBusiness.com, led several stock analysts to downgrade Playboy’s stock rating to “hold” in February.
Bob Myers, Playboy’s president of media, told ChicagoBusiness.com that a reduced barrier to entry into the market is part of what has hurt the company; the high costs that once helped protect the company’s dominant position in the market have been lowered by advances in video-on-demand technology.
“It [the technology] changes the dynamic completely,” Meyers said. “Now all I have to do is send a bunch of movies to the cable operator and they store them in their servers. It’s a completely different business.”
At the same time, the increase in the size of the adult VOD market has also made the cost of competing in the space more palatable. In 2005, adult VOD sales on cable television totaled $282 million; according to projections issued by Kagan Research LLC, sales will reach approximately $437 million.
Meyers told ChicagoBusiness.com that his immediate plans for Playboy include lowering costs in its sagging pay-per-view sector, and conceded that the company may ultimately have to unload its PPV division altogether – but that point hasn’t been reached, just yet.
Acknowledging that “you have to make some decisions about where you want to place your bets,” Meyers added “we haven’t nearly crossed that bridge yet.”
