Conf call/earnings notes
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A few things that struck me:
- Litigation results increased expenses by $300,000 and income by $709,000 = income increased by $409k (2.3 cents / diluted share)
- Laserdisc inventory down to $100-200k. This is a real good thing, we won't have to deal with LD overhang anymore.
- Jump in royalty payments due to the start of international distribution. They have already laid out a lot of $$$ for programming that is now in release.
- They just started audio only content (Peter Framption on CD), and they expect this type of product to have escalating revenue in the future as audio DVD enlarges.
- "Still confident in the viability of DVDplanet" given problems in CDNow and closure of reel.com. Greenwald described the situation exactly as I stated in a previous post. A number of e-tailers went below cost and selling at 40-50% discount while cost is at 40%. DVDPlanet has not grown as much as others, but as "reality comes back into the marketplace" it should grow.
When the e-tailers get looked more as a business and not a marketing & advertising tool, DVDPlanet will hopefully do better.
- 3 parts of business:
Domestic: Great
International: Growing fast and could be a "significant" part of revenue
DVDPlanet: "Patience" while the market goes through necessary turmoil.
*** We will finally see the ramp-up of DVD revenues now that laserdisc portion has become a rounding error. Now their growth will really reflect DVD growth. ***
- DVD returns so far: blended 10% rate... able to return just about everything for non-exclusive stuff they get from other publishers. This is better than laserdisc. LD costs were $8-10 for manufacturing, while DVD is $2/disc. So the cost of returns is far less than LD.
For international returns, things can be done cleverly. If a DVD comes back from France, they could sell it in Germany since all audio tracks are there. Just requires replacing the packaging, not the disc itself.
- Management is very optimistic given the strength of DVD compared to Laserdisc. "If we concentrate we can do wonderful things. Hopefully we won't drop the ball." Arguably they have a 3-4% market share although they have 1200 of 6000 released titles. They think a 2-4% market share is sustainable. [You work out the math from the projections of DVD revenue in 3 years]
- Marty said the "P" word... Playstation 2 :) Didn't have hard numbers for DVD-ROM vs set-top boxes. While P2 may not have as much impact this year, they feel that visibility of DVD will rise considerably with P2. [They didn't even talk about Microsoft X-box which is also DVD enabled.] With all the computer/game stores starting to carry DVD programming, DISK opportunity is good to broaden their retail presence.
- Seasonality: 3rd > 4th > 2nd > 1st. $18 million in revenue Q1 99, and they "feel comfortable" to have $20+ million this quarter and profit not loss! When asked question, they said 0.40 for this year is possible if the market doesn't hit any bumps.
- Regarding Investor Relations: Only 18% of NASDAQ small-caps make money, the rest lose money. Management wanted to be one of those 18% of companies that make money in a high-tech consumer item before they went on the road. Now they have that and they are going to pump the story. |
