An article on USA Video Interactive from Stockhouse may explain some of the volatility last week. Mr. market overprices many tech stocks, but I guess everyone is looking at future potential. I guess we will just have to keep an eye on this one.
January 28, 2000
StockHouse News Desk
By Chaya Cooperberg ( ccooperberg@stockhouse.com)
USA Video: Release Was Stale, More Deals Coming
After charting incredible gains in the span of a week, leaping from $1.50 just last Wednesday to an all-time high of $9.75 at one point, the stock took a sound beating in the market January 27 on profit taking and consolidation. An ill-fated press release in the morning seemed to trigger the downward spiral, announcing news that had already been factored into the share price. The stock rebounded from its lowest levels, as investors loaded back up hoping for coming announcements of contracts. According to COO Anthony Castagno, the company is negotiating several on different fronts.
Toronto, ONT, January 28 /SHfn/ -- USA Video Interactive [USVO] [V.US] released news January 27 into a market that has anxiously been awaiting word of more deals for the supplier of Video-on-Demand systems and services. But the high hopes of USVO's devoted following were dashed by the dismal after-effect when news finally arrived.
The stock took a pounding - dropping about 40% of its value like a ton of bricks until finding its support level just above $5. It subsequently rallied somewhat, as investors climbed back aboard, expecting further announcements of contracts that will position USA Video in the hot video-on-demand space. The wait may not be long, as the company is now negotiating "a lot of different contracts in a lot of different areas," according to Chief Operating Officer Anthony Castagno.
The ill-fated press release detailed USA Video's involvement (already previously known) in a deal to realize revenues from the sale of Linux-based set-top boxes. USVO has been brought on to provide Wavelet, its video streaming technology. Eagle Wireless [EGLW], a supplier of broadband wired and wireless equipment, received a purchase order from Urbana.ca Enterprises, a subsidiary of Urbana.ca [URBA], for the convergent set-top boxes.
The initial order is for $12.5 million and is part of a $125 million contract between Eagle and Urbana.ca to deliver 500,000 set-top box units over a time frame of 21 months. The first shipment of 50,000 set-top boxes will be delivered in April and Urbana.ca will use them in a number of various projects it has underway. USA Video will not provide details as to how much the deal is potentially worth to the company in licensing fees.
"There's significant revenue attached to this that we can't really discuss because we're negotiating with others on almost exactly the same types of contracts," explains Castagno.
"We're talking about phenomenal numbers here and this is just one of the projects we're working on," adds Kevin Yorio, Vice President Investor Relations. "I think the news was extremely exciting and it really gives USA Video another foothold to do exceptionally well throughout the future."
In the opinions of Castagno and Yorio, the tumbling stock price was more a reflection of the market's unpredictable blips and bumps than a negative comment on the press release. "It's just one of those things that happen in the market," offers Castagno.
The news, however, was already out in the market and apparently valued into the stock price after both Urbana.ca and Eagle Wireless announced their end of the deal on January 26. Investors naturally assumed USVO would be involved, and the news confirming it seemed dated and lacking in significant detail. Of course, the pullback also owed a lot to profit taking and consolidation after an enormous run-up in the past few days.
When USA Video signed an initially small, but infinitely trendy, contract last week, its stock soared to unprecedented heights, with leading volume on the CDNX. Trading at just $0.08 last January, and around $1.50 last week, millions of shares changed hands to help the stock chart phenomenal gains.
"Using USA Video's compression technology and video servers, Inetcable.com plans to broadcast Spanish and English programs over the Internet at 30 frames per second to an international market."
The deal, worth less than $250,000, is with a company called Inetcable.com, an Internet cable television provider. Using USA Video's compression technology and video servers, Inetcable.com plans to broadcast Spanish and English programs over the Internet at 30 frames per second to an international market. The system will be unveiled on February 24th and 25th at the North American Broadcasters Association's annual general meeting.
Despite the relatively low dollar figure initially involved, the market lapped up the news, due to its exciting positioning. After the explosive AOL [AOL] / Time Warner [TWX] merger, investors are hungry for more evidence of convergence between the Internet and television.
"That's really where the entertainment market is headed," Castagno agrees. Right now, video streaming for entertainment as well as education, pose the largest opportunities for the company. "We're working with customers on a whole variety of fields right now," he says. "Most of them fit into those two categories."
USVO, the retail investor's darling, will probably have to release more news soon to add fuel to the sudden fiery momentum which has brought it so far, so fast. Over the past year it has announced a whole series of alliances and agreements that didn't affect the company's share price.
"What I think happened is there's been a delayed effect of those," posits Castagno. "We've arranged all these things with companies without really saying what our longer term plan was, but now I think all those pieces are fitting into place. Plus the fact that now we actually have revenues coming into the company."
Back in September 1999, the only source of revenue for USVO was an order worth $20,000 for a streaming video system to a company called Enersphere. Now, revenues are expected to ramp up slowly but surely, starting in Q1 2000 and beyond, thanks to a number of recent contracts.
"It's not going to happen overnight by any means," says Yorio, "but you start to show continuous progress."
Some more activity might come from Enersphere, which in an interesting twist, is now part of Urbana.ca. Enersphere sets up Intranets in small communities, and require servers and content for each installation. "Which we can provide," points out Castagno. "Depending on the size of the community, they would need additional servers or services from us. So Enersphere/Urbana has the potential to bring significant revenues into the company."
More contracts are expected, as deals that the company expected months ago are finalized. "We're in the midst of negotiating a lot of different contracts in a lot of different areas," says Castagno. "They're taking longer than we had hoped."
In a previous interview with StockHouse in September 1999, CEO Edwin Molina remarked that as more and more companies moved into the Video-on-Demand space, there was about an 18-month window of opportunity for USVO to go out and grab market share.
"I think we're very well positioned because we're just about the only company that can provide video to the home user."
Castagno believes the company is well en route to capitalizing on that projection. "I think we're very well positioned because we're just about the only company that can provide video to the home user," he says. Many companies, including USVO, provide streaming video to the high end user. But its Wavelet technology allows very high levels of compression while retaining much higher resolution, so that even home users with dial-up access can receive consistent streaming.
Castagno insists that USVO's technology beats that of industry-acclaimed Real Networks' for that reason. "I think that we win hands down every time," he says. "We think it's better than anything else that's out there right now, and the fact that we're partnering with companies like Inetcable.com shows that others agree."
As more contracts and alliances come down the pipeline, the market could continue to value USA Video's potential in the growing sector. While fourth quarter results due out at the end of February won't reflect the recent revenue-generating deals, investors will likely be heartened to finally see evidence of the company's growth in Q1.
"I think once the market starts to see the transition of USA Video, from going from virtually no revenues into revenues and having the ability to do what we're doing here and actually provide for a profit, they're going to like that," Yorio predicts. "It really puts us in a position to market ourselves to the much broader investment community."
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