MGI to SOAR ANOTHER 70%
January 18, 2000
StockHouse News Desk
By Keri Korteling
MGI Software Set To Soar Another 70%, Say Analysts
MGI Software's stock has gained 70% in the past three months, reflecting
the company's progress toward "owning" the imaging space on the
Internet. Analysts believe the stock could rise another 70% in the coming 12
months. MGI appears to have the wide variety of imaging products needed
to achieve its goal and has lined up some serious partners, including
Compaq, Hitachi and Kodak. In an exclusive interview with StockHouse,
CEO Anthony DeCristofaro says the company's e-commerce unit is
expected to make great strides in the year 2000. He also notes that despite
the resignation of MGI's CFO, the company is proceeding with plans for a Nasdaq listing.
Vancouver, BC, January 18 /SHfn/ -- MGI Software [T.MGI] has soared more than 70% during the past three months as
investors have realized that MGI may in fact be achieving its goal of dominating the imaging sector on the Internet.
Looking ahead, some analysts think the stock has the potential to gain another 70% in the coming year. MGI has developed
leading
software applications, and it has used this leading role to forge impressive partnerships. As well, it has a vision to foster further
growth, with an especial focus on e-commerce. The company also plans to seek a Nasdaq listing in its new fiscal year, which
begins February 1.
During a previous interview MGI CEO Anthony DeCristofaro said MGI's goal was to 'own imaging on the Internet.' The company
wants to have a leading role with images on the World Wide Web, much as RealNetworks [RNWK] holds a premier position in
Web-based audio.
In another exclusive interview with StockHouse, DeCristofaro indicated recently that while the company has made progress
towards
this goal, it has more to do: "We've got an execution opportunity to fulfill here with where we're going in terms of our goals of
owning
imaging and the infrastructure and e-commerce. And right now we are so well positioned because right now in terms of the
competitive landscape it's very, very, very thin."
Going forward, DeCristofaro holds that the e-commerce unit will generate the most interest this year.
"Video's there, but e-commerce will play the front and centre this year in the company. Imaging and
e-commerce."
On the imaging side, with products such as PhotoSuite, Live Picture PhotoVista, and Live Picture
Reality Studio, MGI maintains its leading position with well over 35% market share. MGI is taking
due care to ensure its video unit will also become a market leader. "This whole business unit now
operates, functions, focuses, eats and breathes video and has the autonomy to go out there and drive
businesses and strategic alliances by itself. As we started to drive forward on the imaging and the infrastructure opportunity [?]
we
had to make sure that we didn't lose our leadership in the video side." DeCristofaro says MGI will build on existing momentum
with
several forthcoming announcements detailing the adoption of MGI technologies for e-commerce.
MGI Software has a wide array of imaging software products and services, which are allowed to function individually and with the
ability to adapt to customer needs in any specific marketplace.
At least two analysts have been forced by the performance of the stock to upgrade their targets; recent reports released by
Alpha-Amer Ba of Groome Capital and Daniel Kim of Octagon Capital show a very bullish bent, with one-year targets of $45 and
$53
a share, respectively.
News announcements from MGI Software have flown across the wires at the rate of one or two a week since the middle of
December. The company has a lot to cheer about with new partnerships, appointments, and its inclusion in the TSE 300 listings.
Canada's largest stock exchange announced January 6 MGI would be included in the benchmark index beginning January 21,
2000.
In addition, the company will be counted in the TSE 200 and the S&P/TSE Canadian Small Cap indices.
DeCristofaro and Director of Corporate Communications, Josef Zankowicz, seemed most excited during discussions about MGI's
digital video product line. On January 13, the company was able to announce that its SoftDVD MAX product, a software-only
DVD
playback solution, would be sold with every Packard Bell NEC [NIPNY] PC . The software has been popular in Europe for its
flexibility in adapting to varying needs in multiple countries, honoured for the second time by NIPNY, after receiving accolades
from
Europe's leading information technology company, Fujitsu [FJTSY] and Siemens [SMAWY].
Further to this technology is the Pure DIVA product, an integrated entertainment player disguised as a software application taking
TV, DVD, CD, and video far beyond what is currently available on PCs or consumer electronics. Hitachi [HIT] agreed last year
to
offer Pure DIVA software with its PCs, and "have had a very, very successful Christmas season with this Pure DIVA to the
point
where they want to continue driving this relationship in other products," says DeCristofaro.
Consumers, tech heads and scribes of all stripes were given a view of MGI's version of convergence - the meeting of broadcast
entertainment and the PC - at the recent Consumer Electronics Show in Las Vegas. MGI has teamed with NetTV to offer a
home
entertainment system based around the PC. The system gives consumers the ability to personalize their entertainment experiences
as they download or time-shift broadcast entertainment. This, according to the company, will contribute to the " 'Digital Lifestyle'
of
the new Millennium."
At the Las Vegas show, says DeCristofaro, many consumers began to question the need and the expense of a set-top box such as
those made by TiVo [TIVO] and Replay, in addition to the monthly fees required, for virtually the same experience viewed on a
PC
running MGI's Pure DIVA. Adds Zankowicz, "We definitely see the PC as the furnace of the entertainment centre."
Groome Capital analyst Alpha-Amar Ba suggests that because broadband is being adopted by a wider audience, "and with PCs
becoming ever cheaper and with the Internet occupying more space at home, there's an increasing possibility that the TV will just
be
a peripheral device to the PC, over time. And that's one space where MGI's extremely well positioned to take advantage."
MGI looks set to continue signing alliances with hardware vendors to bundle video software on PCs aimed at consumers. Compaq
[CPQ], an early hardware partner, includes the VideoWave III software on the tear sheet publicizing the new Compaq Pressario
EZ
2000 series. This computer is a high volume product with Compaq hoping to ship 750,000 units or more each quarter. Customers
who purchase this computer anywhere in the world will be able to create and edit videos utilizing the MGI software.
Ba keyed on the growing prominence of MGI in the electronic commerce field. Companies from many sectors are using the highly
touted Zoom technology to convert browsers to buyers. Retailers including Nine West, Bloomingdale's, and 800.com are using
Zoom
Server, which allows consumers surfing the Internet to literally zoom in to see minute details of an image of any product on offer.
Zoom has other applications, such as viewing real estate or vacation properties; and it received the 1999 Best of Show Web
Award
from the Web Marketing Association for the Artmuseum.net site, which features zoomable images of Van Gogh's works. Daniel
Kim of Octagon Capital calls the Zoom Server and Viewer "killer apps" in the immersive imaging field, a position anchored by the
two
patents held by MGI on Zoom.
MGI has increased its projections for Zoom Viewer from 10 million to 25 million users. This kind of market penetration brings
comparisons with RealNetworks, the acknowledged leader in Internet audio. Kim's January 5 research report posits that a
valuation
of US$40 per user (32% of RealNetworks' per user valuation) indicates MGI warrants a market cap of US$1 billion, or C$37 a
share,
for this portion of the business.
MGI is beginning to leverage its capabilities in immersive imaging with a new division called eServices. DeCristofaro explains: "
It's
an emerging unit. It's the baby, but it's within Internet imaging right now and what it is, really, is the after opportunities that are
created from these partnerships from our technologies such as hosting and portal development that want our Zoom Technology
and
clearly want to partner beyond Zoom. And because we're experts in imaging, all of a sudden there's a lot of demand from very,
very
large companies that say, 'would you partner with me on my imaging for my portal and let's structure a way for you to come in
here
and basically get my portal up and running from an imaging perspective - and a marketing perspective.'" This eServices unit
provides
business-to-consumer service in its youth, but DeCristofaro envisions a more mature unit will eventually serve the lucrative
business-to-business marketplace.
In a venture announced January 5, MGI has already targeted the lucrative Internet photofinishing
business. A partnership with Eastman Kodak [EK] subsidiary PictureVision will enable customers
such as Wolf Camera, the largest US photography specialty retailer, to obtain high-resolution prints
from digitally generated images. "We've been working with Kodak PictureVision for almost three
years and [we're] one of the only companies, or the only company that has gotten into their
architecture." Groome's Ba says that the deal is important for two reasons. "First of all it gives more
credibility to the technology. That's because PictureVision is a division of Kodak and these guys
know what they are doing when they talk about pictures. The second point is that it's the first deal of
its kind, but it's certainly not the last. What MGI is going to do is make money any time you take a
digital picture and then you upload that into a Kodak lab website and then you print the digital picture
onto photo paper."
Another positive trend to emerge from the CES show in Las Vegas is news of increasing saturation in the digital camera market.
Octagon's Kim writes in his report that online photo sharing is the next hot Internet application. The Gatherround.com photo
community portal, a joint initiative with Intel [INTC] - which owns an 8% stake in MGI - and Kodak, could eventually also see
benefits from this new PictureVision alliance, as "the opportunity to put a printing function on gatherround.com or an output
printing
function or a partnership is there."
The company has maintained solid financial growth during the past three years with year over year expansion of at least 120%.
Daniel Kim expects the company will become profitable by fiscal year 2002. January 12, MGI issued a news release stating that
revenues for Q4 and fiscal year 2000 were "on track with management's plan, and are expected to meet analysts' expectations."
Revenue predictions for the fourth quarter ending January 31, 2000 range from $8.3 million to $10.7 million, while fiscal year
expectations range from $24 million to $29.6 million.
The previous day, January 11, MGI announced that chief financial officer, Ken Killan, plans to step down. According to
DeCristofaro,
the departure of Killan comes at a time of transition as MGI readies to file for a Nasdaq listing during the first quarter of fiscal
2001.
"He's moving on because of personal reasons, and we're moving to our US listing, so it's a transition. So, Ken will be here to help
out
as we get our new CFO on board, and then continue on." Recent Board of Directors appointee, Ian Giffen, will, along with
DeCristofaro and Killan, form a search committee for a replacement CFO. Giffen also sits on Macromedia's [MACR] Board and
was
previously chief financial officer at Alias Research. He is expected to make an important contribution with his financial
background
as the company goes forward with its US financing. "There are many, many bankers that Ian has worked with and is continually
working with other companies that he sits on the board with."
Nesbitt Burns heads a pool of underwriters who agreed January 14th to buy one million special warrants from MGI to sell to the
public at a price of $25 per special warrant. Each warrant will entitle the holder to one common share of MGI. The offering closes
January 27, 2000. Josef Zankowicz says that the $25 million will be used for general corporate purposes |
