Sonic Solutions, a 2nd baby gorilla from Trilobyte.
A long time ago, I suggested GNSS to the "threaders"
lurking here. I hope some took advantage of my
recommendation.
Message 15215435
Message 15217160
Today, I suggest SNIC. I see it has not been discussed on
this thread. Please read below and good luck.
Trilobyte.
The DVD market has exploded during the last
year and the future continues to look bright
as this technology becomes pervasive. As more
and more people enjoy the quality of DVDs, they
will also want to produce their own in the
same manner everyone produces home movies on
VHS. I believe a future big trend in consumer
electronics will be recordable DVDs. It seems
worthwhile to dig a little deeper to find out
companies that are well/best positioned to
benefit from this revolution.
My "stock for the next year" is called
Sonic Solutions (SNIC).
SNIC is the leading manufacturer of DVD
authoring software. Historically, the company's
products were directed at Hollywood studios.
However, the inflection point for this company
came last year when it entered the consumer
market with it's award winning DVD authoring
products called MyDVD and DVDit. This market
is truly in its infancy. Importantly, however,
the price of hardware is just now reaching the
500$ level making it affordable to everyone.
And with many new hardware players entering
the market (up from 3 to 9 in just a few
months), the price of recordable DVDs is sure
to drop much further.
The strong positioning of Sonic Solutions has
been strengthened by two dramatic alliances
announced in the last 2 months: 1) Microsoft
and 2) Adobe. Both companies have licensed
Sonic Solutions AuthorScript®'s technology.
These licensing agreements, and perhaps more
to come from Asian companies, will contribute
2-3 million dollars/quarter upfront for the
remainder of the year. It seems that Sonic
Solutions technolgy is going main stream
bigtime. And with it's current 90% market share
of the DVD authoring market, things look
promising.
The investment case.
Revenue growth going forward is strong.
Q2 3.38M Q3 4.12 Q4E 6M Next fiscal year: 30M
The eps for 2003 is 0.24cts/share. So based
on future estimates, forward p.e. is 25.
What is a fair value for SNIC? If the conserva-
tive estimates (listed above) provided by the
company are correct, I'd say around 6$. But
are the too conservative? 30M revenue is based
on 2.5-3 million DVDR units sold in fiscal
2003 (March 2002-March2003). Most industry
analysts estimate 4 million+ units instead.
So Sonic Solution is playing it very conserva-
tive it would seem. If indeed 4 million units
are sold (not unreasonable), then revs could
come in around 45 million and earnings would
likely explode to 60cts+.
Cash and shares: the company currently has a
low number of shares outstanding at 14.4M.
Cash was a problem until recently. The company
issued stock recently in private placements
and preferred stock. And with the Adobe and
Microsoft payments, cash on hand stands at a
healthy 10.8 million. It's likely to go up
now that company expects last Q to be the last
quarter with a loss.
Further positives at this juncture: tax loss
carryovers are significant and DSO are at
record low levels.
Furthermore, there are virtually no
institutions or analysts involved with the
stock. Both very positive things in my opinion.
The market punished the short term traders
today but provided what I think is a good long
term entry point in the low 6$ range.
Good luck and please carry out your DD before
considering Sonic Solutions. |
