Macrovision Corporation Financial Analysis Fin419

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Macrovision Corporation Financial Analysis Fin419 Jimmy Kinn March 28, 2006

Transcript of Macrovision Corporation Financial Analysis Fin419

  • 1. MacrovisionCorporation Financial Analysis Fin419 Jimmy Kinn March 28, 2006

2. Outline

  • Macroeconomic Overview
  • Portfolio Position
  • Business Strategy
  • Competitors
  • Stock Facts
  • Valuation
  • Recommendation

3. Company Facts

  • Headquartered in Santa Clara, California
  • Macrovision is traded on the Nasdaq National Market under the symbol MVSN
  • Market leader in content protection, software licensing and installation, and digital rights management (DRM) technologies
  • Alfred J. Amoroso President/Chief Executive Officer
    • Beforehand Amoroso was president and chief executive officer at CrossWorlds Software.
    • Prior to CrossWorlds, Amoroso was general manager of IBM Global Services Asia Pacific.

4. Company Facts Continued

  • Delaware corporation founded in 1983
    • Started in video copy protection
    • Still a leading revenue generator
  • License driven business model
    • Generates recurring revenues by licensing the use of its patented technologies

5. Company Facts Continued

  • Revenues last year:$203 million
  • Net Income last year:$23 million
  • Broad Range of Products and Services
    • Macrovision'sContent Value Managementsolutions for the entertainment industries help content owners, software publishers and system operators maximize the value of their content and digital products distributed via packaged media, online and across cable/satellite and IP networks.
    • MacrovisionsSoftware Value Managementsolutions for the software industry help software publishers, vendors and enterprises maximize the value of their software.
  • Employees :692
  • Financial Year End: December 31 st

6. Industry Overview

  • Business Software & Services
  • Industry Background
    • The design, distribution, and protection all forms of digital content and software are experiencing an unprecedented amount of change.
    • Entertainment content: with the expansion of high-bandwidth internet infrastructure and the industry shift to digital media, PC-based entertainment platforms, digital portable devices, Internet downloads and the proliferation of peer-to-peer file sharing networks, content and copyright owners are increasingly vulnerable to unauthorized use of their content.
    • Increased sales of inexpensive, easy to use in-home copying devices, such as VCRs, CD and DVD recorders, and PC based hard drive recorders, consumers have the ability to make unauthorized copies of video, audio and software content.

7. Industry Regulation

  • Legislative and Regulatory Actions
  • A number of government and legislative initiatives have been enacted in recent years to encourage development and implementation of technologies that protect the rights and intellectual property of the content owners.
  • In the United States, Congress enacted the Digital Millennium Copyright Act (DMCA) in October 1998. This law required all VCRs to comply with analog copy protection technologies that are in widespread use, such as those covered in our patents, beginning in May 2000.
  • Europe and Japan have followed with this policy

8. Industry Regulation

  • The Internet Tax Freedom Act, or ITFA, which Congress extended until November 2007, among other things, imposed a moratorium on discriminatory taxes on electronic commerce. The imposition by state and local governments of various taxes upon Internet commerce could create administrative burdens for MVSN and could decrease our future sales.(10-K)

9. Portfolio Position

  • Bought 200 shares of MVSN on April 3, 2000
  • Since inception it has produced a annual return of:-19.26%
  • Total Loss of:-$10,792.00which is representing a total return of-71.95%
  • Reviewed on November 2004 (Hold)
  • % of Portfolio (market): 1.2%

10. Business Strategy

  • Strategy is to license technologies to third parties that manufacture products or software incorporating their technologies.
    • InstallShield products which are mostly distributed on CD-ROMs as boxed software, contract with outside replicators to produce, package, and fulfill orders.
    • Manufacturing operations are limited to low volume video and audio content security processors used by third party replicators that require in-house system integration and quality control efforts.

11. Customers

  • Customers include:
    • Major Hollywood studios and independent video producers
    • Hardware and software vendors
    • Music labels
    • Consumer electronic firms
    • PC and digital set-top box manufacturers
    • Digital pay-per-view (PPV) and video-on-demand (VOD)network operators
  • Largest Customer: The Motion Picture Association of America (MPAA) studios
    • Use the video copy protection technology to protect movie releases on videocassette or DVD
  • In addition, 43%, 42%, and 42% of the Companys sales in 2005, 2004, and 2003, respectively, are from export or foreign operations.

12. Competitors

  • DIRECT COMPETITOR COMPARISON
  • MVSN RNWK Industry
  • MarketCap:1.08B1.32B73.58M
  • Employees:692819230
  • Qtrly Rev Growth(yoy):2.30%15.20%14.90%
  • Revenue (ttm):203.23M325.06M51.72M
  • Gross Margin (ttm):89.25%69.78%55.46%
  • EBITDA (ttm):64.60M-10.25M2.42M
  • Oper Margins (ttm):23.15%-7.73%4.68%
  • Net Income (ttm):22.11M312.35M41.28K
  • EPS (ttm):0.4301.696N/A
  • P/E (ttm):48.934.6527.84
  • PEG (5 yr expected):1.350.341.32
  • P/S (ttm):5.184.022.49
  • RNWK= RealNetworks Inc.

13. Competitors

  • Video content security solutions are proprietary and have broad U.S. and international patent coverage.
    • No significant analog video content security competitors. MVSN has only analog content security solution that has been widely deployed on commercial products. (10-K)
  • Music Technology
    • Limited number of direct competitors in the audio copy protection and rights management market, including SunnComm (Market Cap: 687.22K ), Sony, First4Internet and Settec, with Sony having substantially greater financial resources.
    • MVSN has significant market share of the CDs produced worldwide to which audio CD content security has been applied.
  • Microsoft announced release of its Windows Media Data Session Toolkit that can to be deployed independently of MVSN solutions.
    • Announcement included SunnComm as the first company to integrate a third party music CD content security technology with Microsofts WMDST.
    • SunnComm uses technology that is competitive with MVSN TotalPlay CD technologies. MVSN has a non-exclusive agreement with Microsoft to allow their Windows Media Player and WMDST to interoperate with MVSN TotalPlay CD solution.

14. Competitors

  • PC Games Technology
  • Limited number of competitors in our SafeDisc Advanced consumer software content protection market, including Sony SecuROM, StarForce Technologies, Settec and Smarte Solutions.
  • Small number of competitors to ActiveMARK for the protection and digital distribution of games online, including Boonty, Oberon and Real Networks RealArcade.
  • Software Publishers
  • Primary competition in the electronic license management market comes from customers and prospects that develop their own homemade solutions.
    • More traditional competitors in various subcomponents of offerings, including SafeNet (who acquired Rainbow Technologies, and has a license

15. Stock Facts for MVSN

  • Share price: $21.04 (52-Week range $14.84-$24.33)
  • Market cap: $1.144B
  • Trailing P/E: 48.90
  • Forward P/E:22.30
  • MVSN has never paid a dividend
  • Sector: Technology
  • Industry:Business Software & Services
  • % held by Insiders: 2.97%
  • % held by Institutions: 94.40%
  • Shares Outstanding: 51.0 million

16. Stock Performance

  • 8 Year (max) MVSN performance against Nasdaq

17. Stock Performance

  • 2 year MVSN performance against the Nasdaq

18. Stock Performance vs. competitors in last 2 years 19. Valuation

  • See Excel File

20. Sensitivity Analysis 28.51 34.63 44.81 59.1 65.14 126.06 9 24.34 28.43 34.52 41.89 44.66 64.89 125.54 8.5 21.39 24.29 28.35 32.84 34.42 44.51 64.65 8 19.16 21.34 24.24 27.25 28.27 34.31 44.36 7.5 17.43 19.13 21.3 23.46 24.18 28.2 34.21 7 16.05 17.41 19.09 20.72 21.25 24.12 28.12 6.5 GROWTH 14.92 16.03 17.38 18.65 19.06 21.21 24.06 6 13.97 14.91 16.01 17.03 17.35 19.02 21.16 5.5 13.18 13.96 14.88 15.72 15.98 17.32 18.99 5 12.49 13.17 13.95 14.65 14.87 15.96 17.3 4.5 11.9 12.48 13.16 13.75 13.94 14.85 15.94 4 11.5 11 10.5 10.11 10 9.5 9 WACC 21. Recommendation

  • Take into consideration
    • Nature of the Industry (highly competitive)
    • Industry Regulations (Federal Government)
    • Macrovisions business advantage over competitors
    • Trading Multiple
  • Recommendation to Hold all 200 shares