Gruntal Report On ACTV (part 1)
09:00am EST 21-Dec-00 Gruntal & Co (Catherine Skelly 212-820-3610) IATV
IATV:ACTV Files Lawsuit Against The Walt Disney Company (part 1)
Gruntal & Co. L.L.C.
Equity Research Note
December 21, 2000
Catherine M. Skelly Matthew Weiss
212) 820-3610 (212) 820-3681
Skellyc@gruntal.com Weissm@gruntal.com
Company: ACTV, Inc. # IATV - $4.25 a/o 7:30 AM EST
Industry: New Media and E- commerce
Intermediate Rating:1 - Outperformer Target Price: $15 (was $28)
Long Term Rating: 1 - Outperformer Target Price: $20 (was $35)
Suitability: Aggressive
ACTV, Inc., Files Patent Infringement Lawsuit Against The Walt Disney Company; Update on ACTV, Inc.'s Subsidiary, Digital ADCO, Inc.
*ACTV, Inc., filed a lawsuit against The Walt Disney Company (DIS-NYSE-$27.50-Not Rated). ACTV, Inc. believes Disney's interactive program enhancements appear to infringe upon ACTV, Inc.'s patents.
*We view ACTV, Inc.'s decision to defend its intellectual
property positively; however, the litigation is likely to be time-consuming and costly. We are increasing our loss per share estimates to reflect these additional expenses.
*We believe that successful litigation would result in
substantial licensing revenues; however, given the uncertainty of the outcome and timing, we maintain our long-term revenue projections.
*We maintain our intermediate-term and long-term Outperformer ratings.
Annual Dividend: $0.00 Revenue Multiple 2000E: 30.8x
Yield: NM Revenue Multiple 2001E: 13.1x
Book Value / Share $3.33 52 Week Range: $51.75 -$3.75
3/2000A:
ROC 2000E: NM 2000E Cash flow/sh: ($0.55)
Institutional Holdings: 46.1% 5yr Estimated Revenue CAGR: 150.9%
Insider Holdings: 11.4% Shares Outstanding (Mil): 49.6
Next Reporting Date: NA Market Capitalization (Mil): $210.8
Year End 12/31 Float (Mil): 37.4
EPS($) Q1 Q2 Q3 Q4 Year Consensus
1999A (0.25) (0.16) (0.11) (0.18) (0.70) -
Prev2000E - - - (0.14) (0.57) -
2000E (0.12)A (0.14)A (0.17)A (0.19) (0.62) (0.56)
Prev2001E (0.08) (0.10) (0.10) (0.10) (0.38) -
2001E (0.09) (0.11) (0.11) (0.11) (0.42) (0.45)
2002E - - - - 0.04 (0.07)
2003E - - - - 0.34 0.44
2004E - - - - 1.05 1.05
Quarters may not add to year due to rounding and changes in share count.
Rev($mil) Q1 Q2 Q3 Q4 Year
1999A 0.57 0.56 0.60 1.18 2.91
2000E 1.39A 1.65A 1.89A 1.91 6.85
2001E 3.22 3.70 4.35 4.83 16.09
2002E - - - - 53.90
2003E - - - - 107.60
2004E - - - - 201.71
E = Estimate, A = Actual
ACTV, Inc., Files Patent Infringement Lawsuit
ACTV, Inc., announced that it initiated a lawsuit against The Walt Disney Company and its subsidiaries ABC, Inc., and ESPN, Inc. for infringement of ACTV, Inc.'s intellectual property. The suit alleges that these subsidiaries of The Walt Disney Company currently use an enhanced TV system that is in direct violation of three ACTV, Inc., patents that relate to the synchronized delivery of televised programming with related Web content and chat. The allegations relate specifically to programming on ABC,
Inc., including Who Wants to Be a Millionaire and Monday Night Football as well as ESPN, Inc.'s Sunday Night Football. In the lawsuit, ACTV, Inc., requests payment for damages and recovery of legal expenses from The Walt Disney Company.
We believe that ACTV, Inc.'s goal in filing suit is to
demonstrate its intention to protect its investment in its
proprietary technology. Further, we believe that ACTV, Inc., endeavors to cooperate with media companies such as The Walt Disney Company through licensing agreements. We do not expect ACTV, Inc., to file many lawsuits; the company intends to target only companies that generate meaningful revenues from commercial deployment of products covered by its patents. ACTV, Inc.,encourages widespread deployment of its technology, as long as it is fairly compensated. Although ACTV, Inc., does not discuss specific licensing proposals, the company plans to offer reasonable terms that enable its partners to operate profitably. Agreements to license ACTV, Inc.'s enhanced TV technologies are based on the size of the audience that can use the enhancements, as well as how integral the enhancement is to the program.
To date, ACTV, Inc., has 21 issued and pending patents relating to the enhancement of audio-visual programming with both synchronous and non-synchronous Web-based content. We believe that the company has a very strong, defensible patent portfolio and if successful in federal court should derive an annual, recurring licensing revenue stream from The Walt Disney Company and other licensees. However, given the uncertainty of the time and legal expense involved in its first major patent infringement lawsuit, we have modeled potential revenue streams from licensing very conservatively. We also assume that legal expenses will begin accruing immediately and we are adjusting our estimates to reflect higher general and administrative expense.
Earnings Outlook
ACTV, Inc.'s primary revenue stream is currently HyperTV, which has an advertising component. Despite the difficulty in the advertising market, we remain comfortable with our fourth quarter revenue projection of $1.9 million, excluding $0.9 million in non- cash revenues. However, we believe that net results will be negatively impacted by the recent personnel additions in intellectual property protection and sales, as well as legal fees. ACTV, Inc., recently added Scott Doyle as Chief Intellectual Property Officer to oversee the defense and licensing of its extensive IP portfolio. The company also hired John Penney as Executive Vice President of Enhanced Media Services to promote ACTV, Inc.'s technology in the marketplace.
The company has also ramped up its national sales force to
support adoption of its One to One Television, digital TV
products. We are increasing our loss per share estimate to $0.19 from $0.14 previously. This brings our full year 2000 loss per share estimate to $0.62 from $0.57 previously. We are also adding $0.01 to our loss per share estimates to each quarter of 2001. Our new estimates for 2001 are ($0.09), ($0.11), ($0.11), $0.11), compared to ($0.08), ($0.10), ($0.10), and ($0.10) previously. That brings our full year 2001 loss per share estimate to ($0.42) from ($0.38), previously. Although this patent protection initiative is likely to be costly and time-consuming, we believe that ACTV, Inc., is right to pursue this strategy and could result in a highly profitable incremental business in several years. As a point of reference, Gemstar International, Inc., began monetizing its intellectual property through litigation and has developed a very lucrative licensing business as a result. |
