HAUP is not irrational at $200/share, within one year. Here is why.
First, I'm not a day trader. I bought into HAUP when they were at 3, and I have held long since then. I bought more along the way and currently hold a little less than 1/2 of 1 percent of the entire company. Needless to say, Friday was a good day for me. :)
Let me also say, where the hell have you folks been for the last two years? :) HAUP has been a consistently good performer in this time, yet the company's stock has traded at or a little over a PE of 1/2 their near-term growth rate. There has been zero analyst coverage, and we are sometimes lucky to get two comments a day on the Yahoo! board for HAUP. To the 2000 new stockholders who decided to show up for the first time on Friday, welcome. :) I'm sure you were all seriously considering this company before the 30 second window when you heard their name on CNBC, and your instincts were right on. :)
To date, HAUP is a nice growth story in a niche market. TV on a PC is not a mass market (yet), and as a result it hasn't been a priority for any of the major video card companies. This has allowed HAUP a window of opportunity to grow without significant price competition in the market. Had TV on the PC caught on a bigger way, I'm sure HAUP would have drowned as major video card players came in and tried to steal market share by selling at cost.
HAUP was expected to earn 60 cents per share next year. The deal they are about to announce with broadcast.com and Yahoo! (I am speculating on that, so DO NOT quote me on it) raises the prospects of raising their earnings significantly from that 60 cents number for several reasons.
First, HAUP will be able to leverage Broadcast.com's and Yahoo's enormous distribution channel to the Internet, to turn what has been a niche market into a mainstream market. If Broadcast.com and Yahoo! advertise the ability to distribute digital content to a PC-based digital TV tuner, and if you assume that even 1% of Yahoo!'s 50 million large audience buys into that idea, that is 500,000 unit sales of the digital TV tuner product for HAUP. At a $300 retail price, and as a full margin product, that's $75 million in sales (I'm assuming HAUP sells at a 50% discount to distribution), and maybe $15 million in net profit. Assuming a total issuance of 4.3 million shares, that's well over $3 a share in extra potential earnings. And, this assumed a mere 1% penetration of Yahoo!'s audience. My estimate is not ultra conservative, but it's not aggressive either. I could easily believe double, triple, or quadruple the $3 earnings number, if the Yahoo! offering is compelling. $3 forward earnings against 100%+ earnings growth ends up giving us a share price north of $200 by the time this deal starts to show real earnings, if it does.
Second, HAUP's new offering seems to compensate them partly on a transaction basis for pay-per-view offerings down through their board. I don't have any basis for calculating those numbers, so I won't add that in as an additional earnings source, but the issue is on the table for others to quantify.
Third, the recent price rise now puts the HAUP market capitalization at over $100M dollars, which puts it onto institutional radar screens
So, folks, this is not just ignorant speculators pushing up the price because they heard a report on CNBC. As they say in Texas, THIS is a Big F*cking Deal. :)
Having laid out the argument for the upside, I'm quick to add that HAUP is selling a non-differentiable commodity and that at some point in the future if this market becomes a mass market that the big video card guys would come in and either buy them (the good ending) or eat their hide (the bad ending). But between now and then there could easily be a massive runup in earnings. The big video guys won't enter this market in an aggressive price-cutting way until after the market materializes.
If you were an early investor in IOMEGA when it released the ZIP drive, you understand what I am getting at. You could have foreseen right at the beginning of the runup that IOMEGA couldn't go without competition for very long. But that didn't stop the market from running it all the way to heaven. If you are the first mover in a new mass market, and you show real earnings, the market is going to reward that in a huge way, not a little way. When you fail to respond effectively to competition later on, the market will take back what it gave.
The devil is in the details, and I am waiting to see what is in this deal they are going to announce. But if Yahoo! and Broadcast.com are going to push this in a big way, and if HAUP is a first mover and has an exclusive distribution deal with Yahoo!, I won't be surprised to see this stock over $100, within three months. And as wacky as you may think me to be, I won't sell all my holdings at that price.
Let's rock and roll. :)
Will |
