WAVEPHORE
www.wavephore.com
Intel owns 500,000 shares, or 3.1%.
Thesis: The TV is going to look more like the PC, and WavePhore will make it happen. Microsoft likes the company, too.
Not everyone will thrill to the notion of employees watching Seinfeld on their office PCs or children hogging the family television
to surf the Internet. But the PC and the TV will someday merge into a home entertainment appliance-probably sooner than later,
now that the Federal Communications Commission has mandated that, by 2002, all television stations must offer digital
programming, the language of the computer.
The prospect that the TV might look more like a PC than the other way around has spurred Intel to research the concept of
Intercast (Internet + broadcast) technology. One of the pioneers is WavePhore, a Phoenix, Arizona, company that transmits
computer data via an unused portion of a television signal, a technique called vertical blanking interval, or VBI. In 1996, Intel
shelled out $4 million for 500,000 shares of WavePhore.
WavePhore may be on the cusp of greatness. The company, founded for $2 million in 1990, recently signed a deal with
Microsoft, which promises to include WavePhore's TV button on Windows 98, its long-promised operating system update. That
will enable users to access WavePhore's site with only a point and a click.
Why would Microsoft give that kind of boost to an unprofitable, unknown company? Because WavePhore, which is set to launch
its wireless broadcast service this fall, has a deal with Public Broadcasting Service's for-profit National Datacast subsidiary, and
PBS's 264 affiliate stations reach nearly all the viewing households in the United States. That means almost anyone with a PC will
be able to receive WavePhore's signal, which is piggybacked onto PBS's signal and beamed via satellite.
The beauty of WavePhore's software is its speed: VBI broadcasts are as much as four times faster than a 28.8 baud modem. The
service, called WaveTop Home PC Broadcast Network, will be supported by advertisers and will be free to users. A PC owner
need only purchase, for $150, an add-in board that enables computers to receive TV signals.
Although the WaveTop service isn't up and running yet, it should deliver CBS SportsLine, news feeds, and other "channels" by
year's end. Time Warner's New Media division has agreed to supply the fledgling site with the Pathfinder Network's magazines
on the Internet, including Fortune, Money, People, Sports Illustrated for Kids, and Time.
The downside is that WavePhore seems destined to remain unprofitable for another year or two. Its new WaveTop unit "has
sucked the cash right out of the company," grouses Stephen Barnes, a WavePhore shareholder and a money manager in Phoenix.
So how will WavePhore survive? The company grossed only $9.2 million through the first six months of 1997 and lost $7.3
million (excluding onetime charges), or $0.44 a share. But WavePhore has built a war chest of $26 million, most of it by issuing
convertible preferred shares that carry a 6% coupon. Meanwhile, WavePhore Networks, which transmits data for such
information-services providers as Dow Jones, Reuters, and Thomson Financial, is profitable on its own, with its gross margin
exceeding 40%. Sales for the unit are forecast to grow by as much as 20% a year over the next few years, says Jay M. Somaney,
an analyst with Hoak Breedlove Wesneski in Dallas.
Sales of WavePhore Newscast, the company's third operating unit, carry a gross margin of 70% and may double in 1998, says
Somaney. It competes with such online news services as C/Net and Individual Inc. in offering so-called push technology, which
makes it possible for users to choose the news they want and then receive it automatically-in WavePhore's version, via its
wireless VBI network.
Will the market accept WavePhore's system? Compaq licensed WavePhore's software in 1996 to build it into some new
computers. And other PC manufacturers, including AST Research and Gateway 2000, are shipping PCs that are
data-broadcast-ready, says Somaney. By the end of 1997, there might be as many as a million such computers in use.
Still, "trying to forecast earnings for this company is impossible," says Barnes. At a recent $11.43 a share, WavePhore trades for
nearly 10 times the last four quarters' revenue. But Barnes, who bought in for around $7 a share, isn't selling at these prices either.
Investors buy shares in a WavePhore not on the basis of current fundamentals, but on potential. |
