Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Gemstar Intl (GMST) -- Ignore unavailable to you. Want to Upgrade?

To: bwiser who wrote (3121)	6/1/2000 3:53:00 PM
From: wopr1	Read Replies (1) \| Respond to of 6516

Fool's Article on Gmst: fool.com Gemstar Still Shining By Richard McCaffery (TMF Gibson) June 1, 2000 Interactive programming guide company Gemstar (Nasdaq: GMST) spiked 13% in early trading after the software maker reported stronger-than-expected fiscal fourth-quarter results. The Pasadena, California company reported net income (excluding merger-related costs) of $43.2 million, or $0.17 per diluted share, compared with $22.2 million, or $0.09 per diluted share, a year ago. The company beat estimates by three cents a share as licensing income for its programming technology grew quickly. Revenues increased 52% to $84 million this quarter. Founded in 1989, Gemstar makes the VCR Plus system, which simplifies life in the jungles of home entertainment by allowing users to record programs by simply entering a code. The system has been installed in an estimated 60 million VCRs, according to a recent Salomon Smith Barney report. It has a number of other developing revenue streams, each with strong potential. Gemstar jumped into the eBooks game in January with its purchase of NuvoMedia and SoftBook Press. The company has high hopes for the portable book market, and also believes its pending $9.2 billion merger with powerhouse TV Guide (Nasdaq: TVGIA) could create a lead steer in the burgeoning electronic program guide industry. The merger is expected to close in the second quarter. The company's other revenue stream is its electronic program guide, kind of a portal for the world of television that consumers use to sort, record, and select programs. The idea here is that it aggregates the enormous selection of programs on one site the same way Yahoo!(Nasdaq: YHOO) helps users navigate the Web. Unfortunately, the company doesn't break out its revenue streams in its earnings release so it's hard to get a feel for its quarterly performance. Although Gemstar's shares have taken a hit in the volatile markets of late, it has been a stock market darling. The company split its shares twice in a little over a year and trades at a forward P/E of nearly 88. It takes a powerful business model to live up to that kind of expectation. Investors should understand that a big helping of success has already been priced into the shares, even with the company trading well below its 52-week high of $107 7/16. The company's wafer-thin business model explains a bit about how it's valued. Gemstar's net margins rang in at an amazing 51% this quarter, up from 40% a year ago as higher sales volumes slipped right to the bottom line. Through the first nine months of the year, Gemstar generated $77.3 million in cash from operations, and almost all of this is free cash flow since its capital expenditures are so low. Compare its free cash flow at the end of Q3 to its total asset base, and you can see what kind of a cash machine Gemstar is turning into. For every dollar of assets employed, Gemstar cranked out roughly $0.20 in free cash flow. As Fool Brian Graney pointed out in this article, the merger with TV Guide will weigh down the business model somewhat. TV Guide carries about $2.2 billion in total assets and has $640 million in long-term debt. But many think the two will combine to form a heavyweight in the EPG sector. Fools interested in entertainment and programming companies should pull up Gemstar's latest financials and see if they like the show. -wopr