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> * * Launches anticip. Portico svc;Expt. gradual roll-out; MO * *
>
> **********************************************************************
> *****
> * Last week General Magic (GMGC) reported Q2 1998 revenues and EPS of
> $91 *
> * thousand and ($0.82) and launched Portico. In the qtr, GMGC
> completed a*
> * funding round that bolstered the cash position to $58 million. We
> *
> * expect the stock action to be less related to the reported financial
> *
> * metrics and more linked to Portico's product adoption and user
> feedback.*
> * With the company meeting its self-imposed deadline of the July 30th
> *
> * launch, the subscription revenue model for the service is likely to
> *
> * provide sequential quarterly revenue growth.
> *
> **********************************************************************
> *****
>
> Michael Parekh (New York) 1-212 902-8960 - NY Equity Research
>
> ==================== NOTE 1:35 PM August 03, 1998
> =====================
>
> Stk Latest 52 Week Mkt Cap YTD Pr
> Cur
> Rtg Close Range (mm $) Change
> Yield
> --- ------ ------- ------- ------
> -----
> General Magic, Inc. MO 8.00 16-1 213.6 482%
> 0.0%
>
> --------------Earnings Per Share---------------
> GMGC Mar Jun Sep Dec FY CY
> 1999 FY N/A
> 1998 FY -0.43 -0.82
> 1997 FY(A) -0.29 -0.25 -0.18 -0.34 -1.06
>
> -Abs P/E on- -Rel P/E on-- EV/NxtFY LT EPS
> Cur Nxt Cur Nxt EBITDA Growth
> ----- ----- ----- ----- -------- ------
> GMGC FY NMX NMX NMX NMX NA X NA%
> ======================================================================
> =====
>
> * Along with the launch of the service there are several new focal
> areas
> for the company, in particular, the subscriber acquisition strategy
> will
> determine the overall revenue growth over the next few quarters.
> To
> date, GMGC has partnered with 52 resellers representing over 200
> regional areas and also offers customer sign-ups from its web site
> (www.genmagic.com). GMGC has been working with its resellers in
> anticipation of the launch and has set up incentive plans with each
> vendor to grow subscriber count. The Portico service will be
> offered at
> multiple price points ranging from $20/60 minutes of usage per
> month to
> $150/1,300 minutes per month. In addition there is also a one-time
> $50
> set-up fee.
>
> * While the company has stabilized its capital base for the next few
> quarters, we expect limited financial risks during this time frame.
> However, over the next few months we expect the company to
> gradually
> scale its servicing and support operations as it prepares for the
> ramp.
> In the nearer term, we expect the provisioning of the training
> services
> to be the primary gating factor to growth.
>
> * Over the next few months, the stock action will be driven by
> adoption of
> the service and overall customer response. While the rollout had
> been
> limited to 1,000 individuals in the beta phase, the final launch is
> likely to provide further improvements in the service as a wider
> group
> of users experience the functionality and user interface. Assuming
> a
> moderate ramp up to a target rate of 500 subscriber additions/week
> by
> the end of 1998, GMGC could see revenue contributions in Q3 and Q4
> of
> $100K and $500K, respectively. The overall burn rate of $9 million
> is
> likely to grow as well as new headcount in the services area is
> added.
> While these estimates might yet prove be optimistic, we are
> encouraged
> by management execution leading up to the launch and expect further
> momentum as the scheduled advertising campaign is launched prior to
> the
> Christmas shopping season.
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