Tekboy made a wisecrack :) on a different thread as if a report on Gemstar from me is a foregone conclusion. The stuff below is an e-mail sent to family members about the quarterly report . It's very general because their understanding of the company is far less than anyone's here.
But before I get to that, I want to clarify something 100 wrote about the $20 million e-book advertising campaign for those not as knowledgeable about this stuff as he is. He's right of course that Gemstar is sufficiently capitalized to easily afford the cash outlay. And if the anticipated growth comes to fruition, more and more cash will be added to the coffers.
However, any time a company spends money, short-term earnings will be less than if the money hadn't been spent. Consider the advertising campaign a long-term investment in the future to help kick-start consumers' interest in e-books. Earnings will be less in the near term than if the company doesn't spend the money with the hope that earnings will be greater in the long term due to results of the advertising campaign.
The e-mail I sent my family is below.
--Mike Buckley
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Compared to the year-earlier quarter, revenues were up 53% and earnings per share were up 95%. That's terrific growth!
Part of the reason earnings increased at a faster rate than revenue is because a healthy chunk of the revenue was from partial recognition of monies collected because of a favorable judgement in a law suit. (This is the second quarter in a row that happened and it's from the same judgement.) There were no current costs associated with that revenue, so profit margins were affected for the good. There will be more money in the future from the same judgement and I expect there will be more favorable judgements with the same company as well as others.
Another reason earnings increased so much is because revenue derived from advertising placed on electronic program guides is now finally beginning to show up in significant dollars. To put that into perspective, two quarters ago the ad revenue was only $500,000. The previous quarter it was $800,000. The quarter just reported had ad revenues of $1.8 million. Though that's massive growth, it's just the tip of the iceberg.
The future looks especially bright for ad revenues because right now there are only 3 milion TVs in use with Gemstar's electronic program guides. It is only now that the use of this new medium will start to be measured by the industry that does that. Also, apparently most potential advertisers aren't particularly interested in using the medium for advertising until there are at least 5 million sets with guides in them. If the TV Guide/Gemstar merger goes through in the next couple of months as expected, there will be 10 million guides owned by the company in use by the end of the year.
Separate from the quarterly report, the CEO was quoted in an interview that the company plans to implement a $20 million e-book advertising campaign to familiarize consumers with that new medium. He also announced a new plan to begin investing up to $1 billion over many years in technology companies that can be used to leverage Gemstar's core products. While the company in the past has only made investments resulting in controlling interest in a company, total control will no longer be a criterion for future investments.
The long-term picture is looking as good as ever for Gemstar. No reason to do anything other than sit back and watch for unusually good or bad signs as things evolve. Right now I'm aware of no red flags. |
