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

To: 100cfm who wrote (6295)	1/31/2004 9:31:41 AM
From: D. K. G.	Read Replies (1) \| Respond to of 6516

Art Samberg pick from Barron's roundtable..... My next pick is Gemstar-TV Guide International, which I talked about once before. It destroyed my performance in 2002. Q: Are you giving it a chance to do the same this year? Samberg: Well, I'm pretty convinced I'm right. It's an option -- on a lot of things changing. The stock is 5. There are 400 million shares outstanding. The company will do $100 million to $125 million this year in Ebitda [earnings before interest, taxes, depreciation and amortization], after $70 million of legal costs. That's a lot of legal costs. Q: Remind us what Gemstar does. Samberg: Gemstar originally had a portfolio of patents for electronic devices, including IPG, the interactive television programming guide, and VCR Plus. It licensed the patents, which appeared to be airtight. But the company got aggressive in some barter deals to make its numbers and lost a suit on one of the patents. Companies such as Scientific Atlanta and Motorola stopped paying for them. The CEO had some problems and left, and the CFO left with him. Gemstar also bought TV Guide, a poorly run but dominant brand. Now the company is a combination of the patent portfolio and TV Guide. Rupert Murdoch bought a chunk of the stock at 70 a share. He doesn't do too many stupid things. He owns about 40% of Gemstar. About a year and a half ago, he installed a new guy, Jeff Shell, as CEO. Q: Did we hear you correctly? He paid $70? Samberg: Yes. I was not the only stupid guy. I had good company. Gemstar is pretty much through its turnaround phase, and is starting to grow again. It has turned around TV Guide. And the number of homes served by the old analog IPG in the past few months has grown from 58 million to 70 million. Neff: Newspapers put pressure on TV Guide for years. Samberg: They were losing people. They weren't investing in the product. They didn't put out any new ideas. But they're no longer selling the big bulk-discount deals. This year they should do about $20 million in Ebitda. They have also signed a deal with Time Warner and DirectTV on the digital IPG side, based on the number of subscribers who use it. There are 49 million digital TV subscribers through cable or satellite, and that should grow 5% to 10% a year for the next few years. Gemstar currently has 7.2 million digital subscribers. The fact that they signed a deal with Time Warner and reached a deal with Comcast suggests they want to settle their other outstanding suits. There is great hope and speculation they will do so in the next three to six months. Gemstar will start to get subscription fees on many more TV sets. In addition, their products are now embedded in many new consumer-electronics products. They get $6 to $10 for every digital TV and DVD shipped. There will be 20 million shipments this year. Lastly, the company has a horse-racing channel with over 12 million subscribers. This group had $25 million to $30 million in revenues in 2003, and will turn cash-flow positive in '04. Q: That sounds like progress. Samberg: When I add up the sum of the parts, TV Guide is worth about $2.50 a share. The analog cable products are worth about a buck. The TV-gaming business is worth another dollar. A few other services are 50 cents. Altogether, that's the $4.85 the stock is selling at. Then there's the new stuff -- licensing fees on digital TVs and such. Oscar Schafer: Is there any debt? Samberg: Gemstar has about $90 million of cash and no debt. If this works out, Ebitda goes from $100 million-$135 million this year to $170 million next year and $240 million in '06. You're at an inflection point. Nobody on Wall Street will buy it until they settle the suits with Scientific Atlanta and others. Actually, some smart people own it, but there's still no good news. The latest quarter was disappointing in terms of revenues and earnings. Earnings are only about 4 or 5 cents a share, so it's more of an Ebitda story.