Investors like MGI's image (from the Globe & Mail)
by Mark Evans - Thursday, November 25, 1999
MGI Software Inc. has a straightforward, but ambitious, strategy over the next 18 months: It
wants to own imaging on the Internet.
In a nutshell, the company aims to have its technology become the standard to display, edit
and create digital photographs and video on the Web. If MGI can execute, it could be
well-positioned to reap huge dividends from the growth of electronic-commerce, which
involves the extensive use of colourful images to sell products and services.
Anthony DeCristofaro, president and chief executive officer of MGI, said the Richmond Hill,
Ont.-based company could be viewed in the same light as RealNetworks Inc., which is the
dominant audio software company on the Web, and has a market capitalization of
$12.4-billion (U.S.).
"Some time next spring or summer, this company will own imaging on the Internet," Mr.
DeCristofaro said.
MGI's confidence seems to be rubbing off on investors. In the past 10 days, the company's
shares have jumped 82 per cent to a record $15 (Canadian) on the Toronto Stock Exchange
from $8.25 -- giving it a market capitalization of $493.6-million.
Daniel Kim, an analyst with Octagon Capital Corp., said the stock's sharp climb was sparked
by a well-attended presentation that MGI gave last week at the Comdex computer trade show
in Las Vegas.
Before the event, he said, MGI had not marketed itself very aggressively in the United States
and was a relatively unknown story. Mr. Kim said that status has changed as more investors
start to recognize that MGI's imaging technology is better than rivals such as Bamboo.com
Inc. or Interactive Pictures Corp.
If investors had taken a look at MGI a year ago, they would have seen a much different entity
with nowhere near the same buzz surrounding its prospects.
Before a series of acquisitions earlier this year, MGI was selling its video and photographic
software in a low-margin consumer market where the ingredients for success are high unit
sales, regular product upgrades and heavy marketing.
To its credit, the company's innovative software products became market leaders, ahead of
products from larger rivals such as Redmond, Wash.-based Microsoft Corp. and San Jose,
Calif.-based Adobe Systems Inc.
Being a one-dimensional software maker in that market, however, had limited growth
potential so the decision to move into the corporate arena and the Web was both savvy and
pragmatic.
Although the company's initial focus on the consumer market gave it a solid foundation, Mr.
DeCristofaro said behind the scenes the company was preparing for the future by
aggressively investing in new imaging technologies.
Through smart management, luck or timing, MGI has found itself in the sweet spot of the
Web, which is changing from a text-based medium into a multimedia vehicle. Companies
operating Web sites or creating digital content need tools to attract consumers, and MGI has
the technology they need.
MGI's evolution away from the retail market took a major step forward in July with the
purchase of Zoran Corp.'s CompCore Group for $2.8-million (U.S.). It was an important
strategic move because it gave MGI software that could handle digital content such as video,
audio and images on devices ranging from set-top boxes and computers.
MGI also acquired 15 software engineers, an installed customer base and a large library of
DVD content.
These investments are starting to bear fruit. MGI said yesterday that Japan's Hitachi Ltd. will
use its Pure Diva software in some of its high-end computers that will give users the ability
to digitally record television shows and watch DVD movies -- without the use of expensive
hardware.
This software does the same thing as hardware made by companies such as TiVo Inc. and
Replay Networks Inc. Sunnyvale, Calif.-based TiVo completed an initial public offering last
month and sports a market capitalization of $1.6-billion.
The shift toward the Internet gained momentum with the acquisition of Live Picture Inc. for
$4.5-million and 1.55 million shares in July.
Analysts said Live Picture's software is exciting because it allows Web sites to use images
that can be viewed in fine detail by consumers using low-speed Internet access. A consumer
interested in buying a sweater from The Gap, for example, could zoom in on the photograph
or video to check the material used.
Paul Bradley, an analyst with Canaccord Capital Corp., said MGI has become a classic
"right spot at the right time" story and there is still lots of upside left in the stock.
MGI SOFTWARE: VITAL STATISTICS
Business description
Supplies personal computer photography and video software. The company markets its
products under the MGI, MGI PhotoSuite, and MGI VideoWave brand names worldwide
Head office: Richmond Hill, Ont.
Telephone: 905-764-7000
Web site: mgisoft.com
TSE symbol: MGI
SHARE VALUES
Trailing 12-month earnings per share...-36¢
Happy investing,
andras |
