And they will have to state that they will be writing DOWN the revenue they have been reporting for the past 3 years.
Actually this write down would be somewhat meaningless. Gemstar can very easily be valued on its cash generating abilities. This cuts through the chafe and all the idiosyncracies of GAAP and pro forma accounting conventions. Because in the end I don't care if I made a profit of $x, when really I was able to put $0 in the bank.
My valuation of GMST only includes actual cash that the company generated. Accounts receivables do not generate cash and thus any SFA revenues recognized via gap are not included in this valuation. If GMST were to write the entire thing off it would not change my present valuation model, because it only tracks current cash and assumes that GMST will receive $0.00 from SFA. Even with this assumption GMST is selling at a price that assumes almost 0 growth over the coming decade.
On the other hand, if you toss these receivables in as cash, it really does not increase GMST's valuation by an enormous amount either (although the collateral effect of collecting SFA money each your for a decade would increase GMST's valuation).
So, from GMST's current valuation, and I know what the psychological effect might be, but mathematically, GMST is priced as if it won't collect any SFA receivables.
I dislike GAAP accounting in many respects, just as I dislike pro forma accounting in many respects. The key to a business is determining how much cash it can generate and keep for its shareholders. GAAP or pro forma profits usually do a poor job of this, at least for companies with media like business models. Which is why cable companies are almost always referenced by cash flow and not profits by analysts.
But my $.02 on SFA and the account recognition. Either way the sums are not that relevant. What is relevant is GMST's continued ability to dominate this marketplace, and remaining undefeated in defense of IP is one important aspect of this strategy. Any weakening in this prong of the strategy will be material, much, much, much more so than whether or not GMST ever collects any of these receivables from SFA.
Tinker |
