What's Digimarc's technology really worth?
By Brenon Daly, CBS MarketWatch
Last Update: 6:45 AM ET Mar 22, 2000
Pulse Report
PORTLAND, Ore. (CBS.MW) -- How much is "gee-whiz" technology
worth?
On the day Digimarc (DMRC: news, msgs) came public back in early
December the answer changed minute by minute. Shares changed hands
as high as 88 1/2 before dropping steadily to close at 56 5/8.
Since then, the stock's jumpiness has continued as
investors have struggled to put a price tag on the
company.
Adding to the volatility: a mere 5.1 million shares
outstanding. Digimarc took a step to fatten its float
last week, filing to sell 2 million shares with another
1 million shares coming from insiders.
"People were just blown away on the roadshow
(for the IPO)," said John Powers, analyst at Robertson Stephens, which
led the offering. Similarly, Digimarc made a splash when it showed off its
product at Robbie Stephen's Tech 2000 conference earlier this month.
"People saw the demonstration and said 'Wow, that's slick'," Powers
added. The stock has gained about one-third in value since the 30-minute
presentation to money managers.
And no doubt, Digimarc makes cool stuff.
Digimarc can embed a Web address in
any printed material. The image can't
be seen by human eye, but is picked up
digitally by a camera, scanner or other
device. (Look for mouses, cell phones
and other gadgets with the same
capabilities in the coming months.)
The company touts the technology by saying it uses "paper as the portal."
This is the way it works: a magazine reader clicks photo of a
Digimarc-enabled ad with a digital camera that's connected to a PC and
-- presto -- a Web pages loads. The page can contain any information,
such as product specs, special offers or even updated information.
That precision is needed because there are some 11 million Web sites
with more than 1.5 billion pages. Some 3 million pages are added each
day, according to the company.
Moving target
Ok, so it's neat -- and maybe even useful -- but try putting a price tag on
it.
Powers declined to name a price target for "buy"-rated Digimarc.
"It's tough to value," conceded Bill Whitlow, director of the Safeco
Northwest Fund, which owns some 27,000 shares. With Digimarc and
other early-stage companies "it's a lot like VC investing."
The Portland, Ore.-based company, which was founded on money from a
consortium of central banks, started out by making "digital watermarks"
that were originally used to foil counterfeiters.
But Digimarc is extending the use of its product beyond the central banks
and putting it in people's hands, literally.
The July edition of Wired will feature
some ads with URLs buried in the text.
Wired publisher Drew Schutte said the
magazine has sold 10 ads with
Digimarc technology in them, costing
about $1,500 on top of the regular ad
sale.
"This will forever change how we
interact with magazines," Schutte said.
"Advertisers love it -- they say it's
something they've been waiting for."
Digimarc's calls the effort MediaBridge, which aims at carving out a slice
of the $11 billion magazine advertising industry. MediaBridge is expected
to generate half of revenue at Digimarc within three years, according to E.
K. Ranjit, the company's top numbers man.
After Wired rolls out the edition, Hearst magazine will be able to offer
Digimarc-bolstered advertisements in its stable of magazines, which
includes Esquire, Popular Mechanics, Redbook and Cosmopolitan.
(Hearst has an undisclosed number of warrants in Digimarc.)
Sales potential
On the profit and loss sheet, MediaBridge is significant because most of
the money flows straight to the bottom line. The expensive development
has already been done and Digimarc doesn't have to keep on a salesforce
to sell the ads. It just pockets a slice of the premium magazines get for the
surf-ready ads.
Gross margins are currently running in the 40 percent range, but should
double as MediaBridge starts kicking in, Ranjit said.
In addition to the financial boost, MediaBridge will get Digimarc in front of
more people. "All of our work has been in non-consumer applications.
MediaBridge is something people can see and work with," Ranjit added.
Of course, there's always risks with emerging technology, either that the
market is slow to accept it (the networked home, for instance) or that it
doesn't take at all (push technology). But Digimarc appears to on to
something.
And with just a bit of tweaking, Digimarc can use its digital technology for
a lot of other purposes: keeping track of content on the Web and securing
documents of all types. |
