Merlin:
You think Gemstar has crossed the chasm. Is it overvalued?
Fatboy's first cut at Gemstar valuation, from the SI Gemstar thread....
To: DownSouth who wrote (384)
From: FLSTF97 Wednesday, Sep 29 1999 9:44AM ET
Respond to Post # 385 of 388
Here is my feeble attempt to model GMST's financial picture with a lot of assumptions. The most major one being that litigation gets settled before yr 2000 (which I think reasonable business people on both sides are likely to do). I've tried to be extremely conservative and am only looking at North American revenues (so figure upside with Japan /Germany at 1.75 x). For revenue I'm only considering recurring or per unit licensing fees plus advertising royalty (no upfront fees, no legal awards). I'm also pegging the VCR revenues at $80 mil/yr with 5% CGR.
As Mike Buckley told me the "deals" are so varied that this is hard to project. I've taken data found in various threads and elsewhere to compile or guess at the revenue streams from various announced agreements.
My revenue streams are limited to the following:
AOL, MS/ATT, Rogers cable,"Other Cable Co.s", STB Manufacturers, and TV manufacturers, Advertising. My assumptions for each are:
AOL: users grow at 500K per yr and contribute $5 per user plus ad contribution at 20% of the CPM numbers below.The impressions/user/day are set at 4
MS/ATT: users grow at 250K per yr and contribute $10 per user plus ad contribution at 50% of the CPM rate with 4 impressions/ user/day
Rogers:1mil user growth per yr up to 3mil total with $3 per user plus 50% contribution on add revenue with 10 impressions/ user/day
Other Cable: 2mil user growth per yr at $3 per user plus 50% ad contribution with 10 impressions/ user /day
STB: 2 mil per yr growth at $10/unit no ad revenues.(This number has the highest likelihood of being wrong so if somebody knows how many are produced or a projection, it would be helpful.)
TV makers: 2.5mil unit growth per yr at $10/unit up to 50% market share. (no add revenues)
CPM decreases over time Yr 2000,01= $10, Yr 2002,03= $7, and YR 2004= $5
Other than TV and Rogers cable (at 100%) the other market penetrations are about 16% +/- 2% of total potential markets stated in yr 2004. I'm not sure how many STB are produced each year so the unit number above is slightly less than that necessary to keep up with cable ramp rate.
Assuming a net profit % of 40 and a PE of 30x gives the following stock valuations:
YR 2000 $2.4 bil
Yr 2001 $3.8 bil
Yr 2002 $5.0 bil
Yr 2003 $5.6 bil
YR 2004 $6.1 bil
Considering that I've ignored foreign sales (you have to have cable or sat to get TV Germany and England I think)and I'm sure people like AOL and MS/ATT will see 16% market penetration as failure on their part, it seems unlikely that one would lose money by buying GMST even at today's stiff valuations. Also consider that the # of impressions/ user/day that I used are one third to one seventh other numbers I've seen.
If GMST were to start to disperse the earnings in 2004 and the market penetration doubled with a 2x increase in impressions, they could easily pay $10/share dividend (holding shares constant)and have a spare $1bil to play with!
Sanity checks are welcome and I apologize for the length of the post. |
