Gruntal & Co. L.L.C.
Equity Research Note
By: whitephosphorus $$$
Reply To: None Thursday, 2 Nov 2000 at 6:25 PM EST
Post # of 61647
ACTV Inc Announces Agreement with AT&T Broadband; Reit.1-1
Gruntal & Co. L.L.C.
Equity Research Note
November 2, 2000
Catherine M. Skelly Matthew Weiss
(212) 820-3610 (212) 820-3681
Skellyc@gruntal.com Weissm@gruntal.com
Company: ACTV, Inc. # IATV - $10.25 a/o 10:30 AM EST
Industry: E-commerce
Intermediate Rating: 1 - Outperformer Target Price: $28
Long Term Rating: 1 - Outperformer Target Price: $35
Suitability: Aggressive
ACTV, Inc., Announces Agreement with AT&T Broadband to Deploy
SpotOn Targeted Advertising Product
* ACTV, Inc., announced plans to begin trial deployment of its
digital targeted advertising product, SpotOn, with AT&T
Broadband, the largest cable multiple system operator (MSO) in
the U.S.
* The initial roll-out will begin in the Aurora, CO market, which
currently has digital set-top boxes installed in 30,000 AT&T
Broadband cable subscribers' homes.
*We believe that the agreement validates ACTV's technology and
model, proves the power of its relationships, and adds an
important revenue stream. Further, the announcement gives us
conviction in our revenue projections.
*We maintain our intermediate-term and long-term Outperformer
ratings and our price targets of $28 and $35 for the intermediate-
term and long-term, respectively.
Annual Dividend: $0.00 Revenue Multiple 2000E: 97.8
Yield: NM Revenue Multiple 2001E: 31.6
Book Value/Share 3/2000A: $3.33 52 Week Range: $51.75 -$6.38
ROC 2000E: NM 2000E Cash flow/sh: ($0.55)
Institutional Holdings: 46.1% 5yr Estimated Revenue CAGR: 150.9%
Insider Holdings: 11.4% Shares Outstanding (mil): 49.6
Next Reporting Date:November 10 Market Capitalization (mil): $508.4
Year End 12/31 Float (Mil): 37.4
EPS($) Q1 Q2 Q3 Q4 Year Consensus
1999A (0.23) (0.14) (0.08) (0.18) (0.61) -
2000E (0.10)A (0.15)A (0.15) (0.14) (0.54) (0.54)
2001E (0.08) (0.10) (0.10) (0.10) (0.38) (0.46)
2002E - - - - 0.04 (0.05)
2003E - - - - 0.34 N/A
2004E - - - - 1.05 N/A
Quarters may not add to year due to rounding and changes in share
count.
Rev($mil) Q1 Q2 Q3 Q4 Year
1999A 0.40 0.45 0.48 0.79 2.1
2000E 0.84A 1.1A 1.6 1.7 5.2
2001E 3.2 3.7 4.3 4.8 16.1
2002E - - - - 53.9
2003E - - - - 107.6
2004E - - - - 201.7
E = Estimate, A = Actual
ACTV, Inc., Signs Deployment Agreement with Major MSO
ACTV, Inc., announced plans to begin deployment of its digital
targeted advertising product, SpotOn, with AT&T Broadband, the
largest cable multiple system operator (MSO) in the U.S. The
initial roll-out will begin in AT&T Broadband's Aurora, CO
market, which currently has digital set-top boxes installed in
30,000 of its subscribers' homes. AT&T Broadband should be able
to charge advertisers higher rates for commercials, which in turn
should incentivize AT&T Corp. to accelerate the deployment of
digital set-top boxes in its cable systems.
ACTV, Inc., and AT&T Broadband are now in the process of
integrating their software and we expect the roll-out to begin
before the end of this year. In the coming weeks, we expect
ACTV, Inc., to announce that several major advertisers have
signed up to participate in the trial. ACTV, Inc., currently has
an agreement with Starcom, a large advertising agency, to help
promote SpotOn to advertisers. AT&T Broadband is the largest
cable provider in the country with approximately 16.0 million
cable subscribers, of which 3.0 million are expected to be
digital subscribers by year end. Further, AT&T continues to
aggressively update its system to a digital platform. We believe
that AT&T Broadband is committed to interactive television
regardless of any changes in AT&T's corporate structure. We also
expect that AT&T Broadband will continue its roll-out of SpotOn
to additional markets next year given initial success in the
Aurora, Colorado market.
AT&T Broadband is expected to pay ACTV, Inc.'s subsidiary,
Digital ADCO, a licensing fee of $5.00 per subscriber per year
for the SpotOn technology. Implementation of SpotOn requires only
the installation of a $2,500 piece of hardware, supplied by
Motorola, Inc., as well as the download of the SpotOn software
into the set-top boxes.
We believe that this announcement is significant because it:
1) validates ACTV's technology and model,
2) proves the power of its relationships with Liberty Media, a
subsidiary of AT&T, Inc., as well as with Motorola and OpenTV,
ACTV, Inc.'s, partners in SpotOn, and
3) adds a new revenue stream to ACTV, Inc. To date, all of
ACTV, Inc.'s revenues have been generated by the company's
HyperTV product, which allows users to view PC-based Internet
content synchronized with the actual programs and advertisements
that they are watching on television. With the formal
announcement of an agreement with a major multiple system
operator, ACTV, Inc., can now capture additional revenue from its
other core products including One to One Television and SpotOn.
SpotOn
SpotOn is the core product of Digital ADCO Inc., a company that
ACTV, Inc. formed in partnership with OpenTV Corp. and Motorola
Broadband Communications Sector. ACTV, Inc. owns 51% of Digital
ADCO and consolidates its operating results. SpotOn enables
advertisers to deliver commercials to digital cable TV viewers
based on their interests, their geographic location, and their
language. The cable operator effectively sends four broadcast
signals to the viewer, whose set-top box seamlessly switches
channels based on the viewer's choices or stored profile, without
a perceptible delay. ACTV, Inc. developed this process and has a
patent on it. SpotOn is compatible with digital TV transmission
systems and the existing installed base of digital set-top boxes,
which currently totals approximately 6.5 million. Users are not
required to have a real time return path to the cable company for
SpotOn to function. SpotOn is designed to make advertising more
effective for digital cable operators, satellite system
providers, digital broadcast and cable television networks and
programmers, consumer product advertisers, advertising agencies,
and media buyers. The goal of SpotOn's features is to improve the
efficiency of TV commercials, which enhances the MSO's
attractiveness as an advertising platform and maximizes
advertising revenues.
Valuation
ACTV, Inc.'s shares are currently trading at a multiple of 9.8
times our 2004 estimate of $1.05, a 26.3% discount to the 2004
S&P 500 multiple of 13.3. The projected earnings growth rate of
the S&P 500 is 12.1%. Given our 2004 projected earnings growth
rate 35.6%, approximately three times that of the S&P 500, we
believe that ACTV, Inc.'s shares should be trading at a multiple
to the S&P 500 multiple. We believe that a $35 long-term target
price is appropriate, representing a multiple on 2004 EPS that is
approximately three times that of the S&P 500. |
