TSQD -- SIEGE
Tech Squared (TSQD) is is combination of turnaround story and special situation play. Its core business is reselling of Apple, especially Mac products. Needless to say, revenue has gone down considerably in the last two years, mostly because of Apple's bad fotunes, not to mention a few bad investments by CEO Roenning (including a gold mine for Chrissakes!!)
TSQD did have the wisdom to invest 4.8 million $$ in a Minneapolis startup called Digital River (DR). DR is in the electronic software distribution (ESD) business. They have proprietary products, mostly software based, the manage financial transactions and encryption over the Internet. They offer INternet "metering" services, meaning they keep track of digital content usage much like a water meter monitors water usage. They compete with companies like WAVX (which has a hardware solution for metering).
ESD is an emerging theme, MSFT is rushing to set up its own operations in this domain, but DR has a start. DR is private, buts its financials are reported in TSQD's 10Qs. Revenue has gone from 100K in 1996 to 2 million in 1997. A minneapolis paper reported in October sales of 300-400K in the fall of 1997. More recently, the CEO was quoted in the Street.com as saying sales have been surging compunded 20-40% in early 1998. Based on the late 1997 ramp up, that means DR could be generating revenues of 800K a month as we speak. DR was chosen to run USA Todays Internet Marketplace, a very busy site. DR is lining up big name customers right and left. They get 20% of all internet sales. Check out the website: digitalriver.com
Here is the investment idea. DR will go public later this year. I anticipate this will be a hot, hot IPO! The revenues that come form digital metering are astronomical. If the IPO takes off like an ATHM or DCLK, then TSQD's value will go up as well. TSQD currently owns 26% of DR stock (Fujitsu owns 19%). If DRs market cap goes to lets say 600 million, that would mean that TSQDs value would be $15 a shares. TSQD has a float of 10.4 million shares, so 25% of 600 million is 150 million, divided by ten million is $15. And that pricing does not include the prospect for a turnaround in TSQD's core business. Apple just reported its second profitable quarter in a row. TSQD has also started selling Windows products as well. Finally, TSQD does participate in DRs revenues. TSQD CEO Glen Roenning is also DR's president. DR pays TSQD for use of warhouse, personnel, and other services.
I could upgrade this stock to a Campaign, depending on news and developments. I started my position at $1.50 and have added since. Expect volatility, especially since TokyoMex made it his pick of the day. You may wish to wait for the "Tokyo Effect" to wear off before you plunge in. For example, the stock got as high as $4 today after TMs announcement, before rapidly collapsing.
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