"SFA should start doing more business with AT&T's broadband cable unit over the next few quarters...."
By Mike Tarsala, CBS MarketWatch
Last Update: 7:14 PM ET Mar 23, 2000
NewsWatch
SAN FRANCISCO (CBS.MW) -- Broadband Internet interaction soon
promises to be the biggest TV advance since the color picture. But what?s
worth viewing right now?
Forget about watching Who Wants to Be a
Millionaire. If you?re looking for a hot investment
area that shows promise over the next three months
-- and beyond ? consider tuning in to stocks with an
interactive TV angle.
The year-to-date stock action is eye-popping. Just
take a look at four top companies striving to make
broadband interactive TV a reality for the masses:
OpenTV (OPTV: news, msgs); Liberate (LBRT:
news, msgs); Gemstar (GMST: news, msgs); and
Scientific Atlanta (SFA: news, msgs). Cumulatively,
shares have spiked 62 percent in 2000, besting the
Nasdaq by three-fold. That's even considering
Liberate's drop of 33 percent.
Compare that with what?s been the success
standard for stocks in 1999 -- the so-called Four
Horsemen of the Internet, in Yahoo, (YHOO: news,
msgs) E-Bay (EBAY: news, msgs), Amazon
(AMZN: news, msgs) and AOL (AOL: news,
msgs). Together, shares of the fearsome foursome
have gained only 49 percent year-to-date, with Ebay
as the only gainer.
It?s easy to see why interactive TV is so hot. More than 150 million
enhanced TV sets will be in use in the U.S. alone, according to Deutsche
Banc Alex.Brown. And television commerce ? soon to be known as
t-commerce ? should out-pace e-commerce revenue by 2004.
Interactive TV hopes to soon offer us some nifty new TV choices. It should
go a long way toward wooing folks to the Internet who have no interest in
owning a personal computer. It will let us all watch our favorite shows
when we want, instead of when the network says we should tune in. And
then there's the interactive games: We can all play along with Regis from
our sofas and actually stand to win something.
The interactive TV trend in the 21st Century should offer us lots more
content and functions than their predecessors -- the Microsoft's Web
TV-style computers. Perhaps most importantly, they'll come with
super-speedy Internet access. What's more, the companies that are doing it
right are making their products very easy to use, like the Web TV
machines.
Should the broad technology market stay strong, there?s no reason to think
top interactive TV plays from the first quarter won?t continue to impress.
Investors can expect a growing number of customer announcements from
top companies.
"We?re at the start of a brand new industry," says a bullish Jan Steenkamp,
chief executive of Open TV, one of the stocks that's definitely worth
watching over the long-term. OpenTV offers the infrastructure software
that makes interactive TV happen. Think of it as one of two top providers
of interactive TV operating systems, with competitor Liberate (LBRT:
news, msgs) being the other. Their software runs both on servers, as well
as on set-top boxes.
OpenTV has witnessed a share price explosion of 106 percent since the
start of the year. The company seems to be picking up steam, as its
software is loaded inside of 6.1 million set-top boxes worldwide ? four times
Liberate's number. OpenTV put its software into 1.6 million boxes alone in
the last quarter of 1999, and analysts look forward to another pop when the
company reports earnings at a date on or near Apr. 27.
The company could gain a significant amount of boxes come October, when
it launches services targeted at the 2.3 million customers of British Sky
Broadcasting (BSY: news, msgs).
In the near future, the company could offer a glimpse of its software that's
in development for letting set-top-boxes record and store video on a hard
drive, a la another interactive TV company called Tivo (TIVO: news,
msgs). OpenTV is working with satellite company EchoStar (DISH: news,
msgs) to do it. OpenTV expects to incorporate the watch-when-you-want
feature a part of its operating system later this year.
Meanwhile, Liberate, which analysts say leads OpenTV in Internet
browsing technology, could prove to be an even better bargain than
OpenTV. Trading near 83, the stock is off 44 percent from its all-time high
set in December. Several analysts, including Jennifer Smith at Dain
Rauscher Wessels in San Francisco, rate the stock an "aggressive buy".
Liberate should report revenue growth of 51 percent this year, with
potential for even higher growth. And Liberate will be the software used in
AOL?s upcoming AOL TV set-top box, giving the company an awesome
endorsement that could help it win even more business.
Speaking of AOL, the Internet's fallen angel has started to ascend, thanks
in no small part to its upcoming AOL TV. Investors that panned the stock a
few weeks ago suddenly are praising it, due in large part to the upcoming
product, due mid-year. AOL's stock finally has reversed a three-month
slide, exacerbated by its unpopular merger plan with Time/Warner.
The AOL TV box is expected to appeal to the 65 million households not
already online. Insiders say AOL will lead with its best foot forward and
make the product super-easy to use. And what's best about it, AOL should
be able to use all the cool stuff on its site people already like, such as online
communities, Internet chat, instant messaging and the rest -- all with
broadband access from the TV.
AOL is expected to include in its new box an interactive programming guide
from Gemstar (GMST: news, msgs). This could very well be the key to the
product's success. The programming guide is the TV browser with a search
engine that lets you enter the show -- or type of show -- you want to watch.
Analysts say these types of programming guides will become the first "killer
app" of interactive TV.
No doubt, Gemstar is a gem. Shares are up 28 percent so far this year, and
analysts say it has running room. Each of seven analyst now covering the
stock rates it a "strong buy." Solid financially, the company has 47 percent
net income margin, notes John Corcoran, an analyst with CIBC World
Markets in New York. The company's sitting on $270 million in cash, and is
set to reach $220 million in revenue this year.
And to protect its assets, the company has 180 patents, and 440 pending
patents worldwide, and it's been aggressive in protecting them. The
company is in potential settlement talks with interactive TV companies Tivo
(TIVO: news, msgs) and privately held ReplayTV Inc. over ongoing patent
litigation, sources say.
One of the most high profile companies in the group, Scientific Atlanta
(SFA: news, msgs) is one of the only ones with both a hardware and a
software play. The company is the set-top-box leader, as cable companies
install about 40,000 of the boxes a week.
Hardware-wise, the company is driven by a huge ramp in set-top-boxes that
began in the third quarter. But sales of the company's transmission
equipment -- which make up the highest percentage of sales -- can't be
forgotten. The company should start doing more business with AT&T's (T:
news, msgs) broadband cable unit over the next few quarters.
What's more, Scientific Atlanta has its own software that competes with
OpenTV and Liberate, called PowerTV. Not that the company's saying it
will happen, but Scientific Atlanta shareholders could get added value
should it ever choose to spin off its PowerTV unit into a separate company,
opening the software for use with other set-tops.
"I think that's the plan, although the company never has said what its
intentions are," says Greg Mesniaeff, an analyst with The
Robinson-Humphrey Co. Such a move could be announced later this year, he predicts.
There are a bunch of speculative stocks in interactive TV that might be
worth a look -- with a healthy dose of skepticism. Among them, Excite
AtHome (ATHM: news, msgs), a leading consumer broadband company
with a confusing business plan. Shares seem to be turning a corner after a
nearly bumpless slide from a price of 43 1/2 to start the year.
In the future, stocks such as Avid Technology (AVID: news, msgs) and
Accom (ACMM: news, msgs), companies that specialize in digital editing
systems for broadcast, stand to boost their revenue from interactive TV.
Since interactive TV is new, broadcasters don't have experience dealing
with the content, and could turn to Avid and Accom for help. Avid trades
near 20, up 56 percent for the year. Accom recently shot up to 3 1/2 before
settling back down to 2.
Another speculative stock to research is Interactive Network Inc (INNN:
news, msgs), a company analysts say is working to develop interactive
game technology in the United Kingdom. Its shares trade near 4 1/2.
From the big names to the small frys, choices abound in interactive TV. But
there's little doubt that companies that drive the technology will profit from
what some are calling the biggest groundswell of change in the broadcasting
industry in more than 30 years. |
