NET MONEY: A Flier for Wall Street: Firm That Delivers Net via Airwaves
webweek.com
July 14, 1997
NET MONEY: A Flier for Wall Street: Firm
That Delivers Net via Airwaves
By Whit Andrews
WavePhore is seeking to cast sufficient product anchors into the
content delivery pond so that even a storm of competition
cannot capsize it.
The Phoenix company sells hardware that is installed at the
transmission end for airwave broadcasts, including FM and TV,
and software for users' computers or for the local networks that
receive those broadcasts. Its business products include the
content aggregator and filter WavePhore Newscast, a
current-information product distributed via the Internet and
supported in part by the recent acquisition of Paracel Online
Systems for $9 million.
For consumers, WavePhore later this year will offer WaveTop,
which will collect existing Web sites and push them through a
portion of TV's "vertical blanking interval"--unused transmission
time within a given frequency--to PCs equipped with TV cards.
Mail-order powerhouse Gateway 2000 is an early adopter, and
will allow a compatible card and the service as an option later
this year.
Only with the Web's coming has content available for
transmission reached critical mass that supports the introduction
of broad-interest corporate and consumer products--a benefit
for WavePhore. "I used to joke that I felt like a minister in a
church and I had no choir and no audience," said CEO David
Deeds. "We're starting to get a pretty full choir, and there are
some people in the audience, too."
The air transmission market is based on the idea that it allows
for easier delivery of complex information than the Web,
because computers can receive information continuously as long
as they are turned on. More than a dozen one-way data streams
about equivalent to 14.4 modem feeds are available in each
channel. (For return requests, as with satellite services and some
cable modems, an Internet connection must be activated.) The
disadvantage, of course, is that this transmission method
requires a hardware leap to a TV card, just as the Internet
required computers be shipped with modems.
Deeds sees WaveTop and WavePhore Newscast as
WavePhore's best chances for strong profits, especially
domestically, over the next several years. Margins in the
hardware sales business can be good, he said, but for content
services they can be "very attractive"--as high as 60 percent for
the corporate service and higher yet for WaveTop.
WavePhore's gross margin was 46 percent in the quarter ending
March 31.
The company showed in that quarter a net loss of $3.5 million,
or 23 cents per share, on revenue of $3.7 million. The results
represented a decline from revenue of $5.2 million in the prior
quarter, with a loss of $1.7 million. Analysts surveyed by
Zack's, the stock information service, had expected a loss of 12
cents per share for the March 31 quarter and now expect a
16-cent loss in the quarter ending June 30. The company said a
decision by a few major customers to put off installations was
behind the higher than expected loss per share.
WavePhore's stock price has stayed fairly steady. Overall, its
52-week high was $12.12 and its low $5. It traded last week at
$8.25.
In spite of the recent financial performance, analysts are
heartened by WavePhore's strategy of dropping anchor in every
cove.
"I think it makes sense from the viewpoint that they can offer a
complete product line," said Jay Somaney, an analyst at
Arneson Kercheville & Associates. "Then you're getting a
stream of revenue from the content and from the service. It
helps to lock in a user to WavePhore's services, because it's
proprietary hardware," he said.
Such hardware is necessary only if a company chooses to seek
delivery of a WavePhore service via airwaves; WavePhore
Newscast is an Internet-based product.
Still, at almost every point in WavePhore's strategic plan stands
a potent threat: Microsoft, which recently expressed interest in
over-the-air data broadcast, could develop replacement
software for WavePhore's client offering, and has a strategic
relationship of well-known depth with WavePhore partner--and
investor--Intel.
WaveTop indeed also competes to some extent with Intel's
Intercast, a young content delivery program in which TV
channels such as MTV ship users Web content relevant to
what's being broadcast simultaneously on regularly scheduled
shows. WavePhore software is also included in Intercast.
And other companies, including NorPak, in Kanata, Ontario,
sell head-end hardware for the transmission of data across the
vertical blanking interval or other radio frequencies. Microsoft's
stated interest in vertical blanking interval broadcasting is,
Deeds said-- echoing many of those over whom Microsoft has
loomed before--"legitimizing the business."
He cited analysts' estimates--made after Microsoft announced it
would seek to bundle VBI-reading software into the next
versions of its Windows operating systems--that double the
number of TV-card equipped PCs expected to be in existence
in 2001, from 20 million to 40 million. (Indeed, WavePhore's
stock trading volume bulged around the Microsoft
announcement.) "That's 40 million eyeballs that we have the
opportunity to sell information to. That's our real growth
opportunity," said Deeds. |
