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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: LastShadow who wrote (4220)	12/7/1997 10:54:00 PM
From: Maya	Read Replies (2) \| Respond to of 120523

I picked General Magic (GMGC $1.90) as an interesting little GEMS with upside to $6. Here is why: 1. Basic Data: 26.8 mil O/S, 40 mil cash or $1.50 cash, no debt, tax loss carry forward $138 mil, market cap $51 mil. 2. Buying a stock near its cash value is generally a bargain. It is exceptionally so in case of General Magic if we consider its tremendous potential --- if its network service Serengeti archives some degree of success (5% of the mobile market). Secondly, how often we could buy a $1.90 stock with 5 top American CEOs sitting on the board and $165 mil R&D money already invested? 3. CEO Markman has assembled an impressive board that included: CEO of Bell Atlantic Mobile, the largest wireless service provider on the East Coast); CEO of Cellular One, the AT&T Wireless and AirTouch Corporation joint venture; CEO of Triton Communications; CEO of Tandem and CEO of Visa USA. 4. It raises an interesting question: Why are these Telecom Heavy Weights Sitting on the Board of this Little Unknown Company? The answer perhaps lies with General Magic's visionary new product code named Serengeti, a powerful, Internet-based application that will allow people to use one point (phone) to access all network information and communications activities (voice mail, email, fax, calendar, address book and stock quotes). 5. General Magic designed Serengeti to be transparent to the carriers that will be offering it. The backbone of General Magic's service is a series of high-tech server centers with redundancy built in. These regional centers provide all of the General Magic services. Carriers are not required to install any additional equipment in their own switching centers or anywhere else. 6. When Serengeti launches early next year, wireless carriers are likely to be aggressive marketers of the service because it helps them to sell more air time. It makes wireless essential to many mobile users --- hence, it transforms wireless carriers from being "just a wireless wire" to being mobile communications services providers. This is such an exciting new revenue stream, which probably explains why there are 3 wireless CEOs sitting on General Magic's board. 7. General Magic may have to share subscriber revenues with wireless carriers, however the market potential is very big, according to Roberta Wiggins at the Yankee Group in Boston. "Serengeti should appeal to many of the estimated 43 million workers who spend a significant portion of their workweek on the road. And That number will grow to 63 million by 2001". 8, If Serengeti succeeds in signing up 5% of the 50 mil mobile workers (and growing) at $30 per month, that will give the company an annual revenue of $900 mil. With wireless companies sharing 40% of the revenue (on top of selling a lot of more air time for themselves), General Magic's sharing of revenue is still a significant $540 mil. Of course, that's years away and there is a big IF. 9. Given the annuity nature of the service and the lead time General Magic has (according to Andew Seybold, Magic is serveral generations ahead), and as more and more mobile workers sign up the service as they sign up internet today, one could make a case for General Magic to be valued on a subscriber basis, much like the way AOL or cellular companies being valued today. 10. So what are the revenue opportunities?? $540 mil per year (?? after reaching 2.5 mil subscribers), assuming a 5% penetration of the 50 mil Mobil market; a $30 monthly subscription for the service with wireless carriers getting 40% of the potential $900 mil annual revenue). This is likely a too-good-to be true #, however, if GMGC achieves 1/10 of the $540, it is still a great annuity. 11. So How Much Should The Magic Be Worth? A lot more than $1.90 or the current market cap of $51 mil. Let's see What we are getting for $51 mil? 1. Cash: $40 mil ( as of Sept30) or $1.50 2. R&D invested: $165 mil 3. Tax Loss Carry forward: $139 mil 4. Subscriber Revenue Potential: $540 mil per year ??? 5. Intellectual Property: three key communication technologies 1) patented agent technology; 2) integrated communications appls and 3) Natural user-interface designs. 6. A Collection of Talented People such as developers of Arpanet and co-designer of Telescript, patent holder of wireless data packet protocols and ... 7. An intriguingly well-connnected board. Alternatively, a more conservative and simplistic approach yielded a $6 price target based on what's known today: Cash $40 mil + $14 mil tax loss carry forward(10c on a $1,based on $139 mil loss) + technology $1.50 per share (based on $165 mil invested) + future $1.50 per share (based on the $540 mil potential revenue) + 50c per share for its Handheld Mobile Solutions for vertical markets + 50c per share for the people and the board ===== $6