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Technology Stocks : Gemstar International Group (GMSTF)
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To: DavidG who wrote (20)3/23/1997 3:07:00 AM
From: The Thrifty Investor   of 226
 
David,

Well let me make it clear that I am declaring my analysis on
Starsight's profitability as a standalone entity in my 3/15 message
number 16 null and void. I had not read the 10K at that point.

Before I dwell on the negatives, let's state the positives that
are still in place for StarSight. High revenue growth rate (68%
quarter over quarter sales growth between 3Q96 and 4Q96) and 8
consecutive quarters of high growth as stated in my message number 16.
Also, they have argueably the best system on the market today. Their
patent portfolio is good and they collect revenue from their
intellectual property. On 3/17 they announced that they will be in
the Zenith digital settop boses. Also, given the nature of
shareholder lawsuits today, companies must be quite pesimistic in
their SEC reports.

Now for the negatives, the competition is getting more intense and
StarSight may not be able to keep up the high revenue growth. Prevue
appears to pose the greatest competitive threat to Gemstar and
Starsight. Both smart settop boxes and internet offerings could
adversely affect their business.

O.K. so now how does all of this relate to the stock price of
Gemstar and the shortterm downside risk from here? Well first of all
I'm glad that I own Gemstar and not StarSight. It is clear that
StarSight is dragging Gemstar down and not vice versa. Gemstar is
highly profitable and StarSight is loosing money. If the merger does
not take place, I believe that Gemstar's stock would rise some. The
more these stocks tank, the greater the chances are that this deal
will not be completed. There is a deadline of 6/30/97. Maybe we will
be provided some better insight as to why Gemstar wants to purchase
StarSight when we receive our proxys. The combined companies would be
operating pretty close to breakeven by my calculations. If you figure
on roughly 45 million shares in the combined company, with 1996
combined sales of $71 million and the present $10/share for GMSTF, one
calculates a price/sales ratio of 6.3. The price/sales ratio was 10.8
when GMSTF was $17/share. The stock does seem to be dropping like a
knife. The best answer that I can give is that somewhere between $5
and $9 this thing is probably going to level off.
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