This was originally posted on the Motley Fool Gemstar thread, re Gemstar's Rule Breaker status
technologyreports.com
Posted: 2/7/00
Author: Unknown
Here's another analyst report to show that GMST meets all criteria very nicely - except of course the overvaluation language.
1. It is the first mover and top dog in the Interactive Program Guide industry. It is such a top dog that it has actually been countersued as a monopolist (kind of silly because thats what a patent is intended to do).
1a. This industry is both emerging and important. Recently published studies have estimated that the Interactive Television industry will gross in excess of $20 billion per year within the next several years. The IPG space has been called the "most valuable piece of real estate in the world." The first place people will see when turning to a television program, or accessing the web through their televisions, it will also be the place they will return to from the web.
MSFT, AOL, DISH, and nearly every television producer in the world have licensed GMST under terms very favorable to GMST. As an example, MSFT cows to no one. Some of GMST's most important patents expire in 6 to 7 years, yet MSFT signed up for an exclusive long-term contract of 17 years. This is one product that MSFT won't steal or imitate. It demonstrates GMST's market power that they were able to get such a long-term contract with powerhouses like MSFT and AOL long beyond patent expirations.
The long list of contracts, including a deal with Sony sometime back - but Sony has just announced a $3 billion cable box deal, of which GMST will get $10 per plus, plus ad and ecommerce share, demonstrate the importance of this industry. Imagine Yahoo! with a patent on its portal technology so that Lycos and Excite would have to license from Yahoo! and then share their e-commerce and advertising revenue. That is what GMST has - and I don't think I'm exaggerating.
GMST also gets free promotion from NBC, and from television producers.
According to Forrester Research,
"Interactive Television Will Generate 20 billion In revenues By 2004"(8/4/99)
Their report estimates that by 2004 ITV will generate:
-11 billion in ad revenue
-7 billion in commerce ("T-commerce")
-2 billion in subscription revenue
According to Josh Bernoff, principle analyst for TV research @ Forrester: "As an advertising medium, it will rival the Internet within three years." The report also says that the main benefactors will be cable and satellite operators as well as technology vendors.
The three applications that it says will increase and expand revenue streams within 5 yrs.are:
-EPGs or electronic program guides (reaching 55 million households by 2004 with 3.2 billion ad rev, 1.1 billion in commerce.)
-enhanced broadcasts (reaching 24 million households by 04' with 6.2 billion in ad rev. and 3.8 billion in commerce)
-tv based internet access (13 million homes, 5 billion in total rev. including subscriptions, ads, and commerce)
2) Sustainable advantage gained through business momentum, patents, visionary leadership, and/or inept
competition....
(1) one of the strongest patent portfolios in the world, (2) long-term exclusive contracts, (3) every year more and more televisions and cable boxes will have GMST's IPG built in creating tremendous advertising and ecommerce revenue for GMST, (4) finally by 2004 one-fourth of all US homes will be supplied by Gemstar's electronic program guide (EPG) creating a media property with unparalleled reach.
3) Excellent past share appreciation, measured by a relative strength of 90 or higher....
Gemstar meets this standard. Just look at the chart...
4) Good management and smart backing....
The company currently has 46%+ net margins (not pro-forma, and after taxes). Net margins will continue to grow. It is one of the leanest machines in the world, with some of the toughest negotiators on the planet for licensing its services. It has proven its model by leveraging its former cash cow VCR+ (you know, the plug in the numbers and the VCR automatically records). The IPG product is far more valuable. GMST is also selling an improved V-CHIP which provides more flexibility to V-CHIP use. The IPG is their monster product though.
5) The greater the consumer brand, the better...
Check out Walmart, televison producers are directly marketing Gemstar as a value added must have feature. Once brought home, GMST gets used on average 3 to 4 times per half hour of television viewing, over and over again. Not even Coke is that habit forming. Plus NBC has agreed to provide multi-million dollars of advertising for GMST on its broadcasts and has become the first advertising on GMSTs IPG.
In addition, GMST rides the coat tails of every television manufacture. It gets $10 per television set, cable box, etc., that is pushed out the door that has GMST inside (the ecommerce and advertising is on top of this). GMST product will move in the same volume as these mass market consumer devices. Except, GMST will also get the reoccurring advertising and ecommerce dollars. Moderate estimates (tough to make due to newness of industry) state that GMST guides could do $270 per year, per box, in advertising. GMST would get anywhere from 20% to upwards of 50% of this revenue. Straight to the bottom line.
If GEMSTAR could end up with an Intel type thing (GMST inside)- that would be the icing on the cake.
6) A significant constituent of the financial media is recently on record for calling it overvalued.
Compared to Internets, GMST is not outrageously priced, but its forward PE is above next year's growth rate. And compared to WINK it is remarkably cheap. This, despite the fact, that GMST has patented a technology to use the paging spectrum (agreement with SkyNet) which allows it to constantly update its Program Guides - and will allow 2 way communication by 2001. Significance, allows GMST to get around the VBI which Wink must use, and the cable companies control. It also is much more cost effective than using VBI to update (WINK has an entire world of VBI spectrum it has to update, GMST can do it through the paging spectrum), and provides many operational advantages. REAL SIGNIFICANCE: By 2001 GMST won't need Wink to do ecommerce over its technology.
|
