Financial AnalysisFinancial Analysis
Macrovision CorporationAn Overview of Financial Performance
Presented November 30, 2006 by Radityo Ardi Nugraha and Chenchen (Carl) Wang
AgendaAgenda
Macrovision Corporation provides digital lifecycle value management solutions that enable the delivery and enhanced use of software and content.
This presentation provides an overview of our financial analysis.
Overview
Portfolio Position
Business
Competitors
Stock Facts
DCF Analysis
Overall Portfolio Fit
Recommendation
Company FactsCompany 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. AmorosoPresident/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.
Portfolio PositionPortfolio Position
• Bought 200 shares of MVSN at $75 on April 3, 2000
• Since inception it has produced a annual return of: -14%
• Total Loss of: -$9432 which is representing a total return of -63%
• % of Portfolio (market): 2%• Reviewed on March 2006 (Hold)
Company Facts Company Facts (Cont.)(Cont.)
• Market Cap: $1.39 Billion• 2005 Revenue: $203 Million• 2005 Net Income: $23 million • Stock Price: $27.20• Beta: 1.26 (Bloomberg)• 2005 ROE: 5.17%• 100% Equity• Employees : 692 • Financial Year End: December 31st
*Facts from 2005 10-K
IndustryIndustry
• The design, distribution, protection and consumption of all forms of digital content and software
• Content and copyright owners are increasingly vulnerable to unauthorized use of their content
• Annual Loss: $23-$25 billion to the U.S. copyright industries.
• Entertainment & Software distributors and publishers have become more concerned with protecting their intellectual property.
Industry Industry (Cont.)(Cont.)
• Software vendors and systems vendors need simple, scalable solutions for the use of their products
• Seeking ways to package their products in order to reach a larger share of the available market.
• Enterprise customers focused on tools that provide a simple installation, activation and maintenance experience
Core BusinessCore Business
• Entertainment Technologies– Revenues increased $4.4 million or 22.4% from
the third quarter of 2005 – Growth in hardware licensing, e.g. set top box
licensing
• Software Technologies – Revenues increased $7.1 million or 32% from the
third quarter of 2005 – Growth in market penetration and a growing
customer base, as well as a result of the acquisition of eMeta
• Significant seasonality in business
Costs and Expenses Costs and Expenses
• Entertainment Technologies – Replicator fees, Hawkeye service costs,
ActiveMARK service costs and patent related litigation expense
• Software Technologies – Product support costs, direct labor costs of
employees on consulting or training, the cost of patent defense, acquisitions and patent amortization.
• Research and development expenses• Selling and marketing expenses • General and administrative expenses
CustomersCustomers
• Entertainment Producers and Distributors
Motion Picture Studios PPV/VOD System Operators Set Top Box / DVR Manufacturers
• Buena Vista Home Video (Disney)
• British Sky Broadcasting (UK) • Daewoo Electronic
• HBO Home Video • BS Conditional Access Systems (Digital BS Broadcast)
(Japan) • Mitsubishi Electric
• Lions Gate Entertainment • DirecTV (North America) • Motorola Broadband
Music Labels PC Games/Software Publishers Trymedia
• Avex (Japan) • Activision • AOL • EMI • Apple • Atari • Pony Canyon (Japan) • CDV Software Entertainment • BigFish
CustomersCustomers
• Software Publishers
• Enterprise End-Users
• Adobe • IBM • Autodesk • Sybase • Cadence Design Systems • Synopsys • Cisco Systems • UGS PLM Solutions • Citrix • Wind River Systems
• Agilent • IBM • BMW • Lockheed Martin • Boeing • Motorola • Eastman Kodak • Nokia • Ford Motor Company • Philips • Honeywell • Siemens
CompetitionCompetition
• Entertainment Producers and Distributors – Video Technology – No significant
competitor– Music Technology & PC Games Technology
– Compete with Microsoft, Sony, IBM etc.
• Software Publishers – Enterprise End-Users
CompetitorsCompetitors
MVSN MSFT RNWK Industry
Market Cap: 1,450 293,830 1,890 120.98
Price 28.35
Revenue (ttm): 234.48 45,350 353,260 48.49
Gross Margin (ttm): 85.41% 82.16% 70.10% 58.14%
EBITDA (ttm): 73.68 18,780 -23.15 2.47
Oper Margins (ttm): 15.15% 39.38% -14.85% 0.06%
Net Income (ttm): 20.93 12,940 401.55 -93.62
EPS (ttm): 0.399 1.251 2.233 N/A
P/E (ttm): 71.08 23.89 5.25 32.34
PEG (5 yr expected): 1.39 1.49 0.96 1.49
P/S (ttm): 6.35 6.48 5.28 2.5
# Shares 51.25 9,830 161.6
IncomeIncomeNet
RevenuesNet
Income
128,346
203,230182,099
'03 '04 '05
26,941
36,730
22,115
'03 '04 '05
Revenue by DivisionRevenue by Division
Services12%
Licenses88%
Du Pont AnalysisDu Pont Analysis
2001 2002 2003 2004 2005
Equity Multiplier 1.08 1.09 1.12 1.14 1.16
Total Asset Turnover 0.29 0.31 0.33 0.40 0.41
Profit Margin 19.42% 11.82% 20.99% 20.17% 10.88%
ROE 6.03% 4.07% 7.83% 9.22% 5.17%
Stock PerformanceStock Performance
Stocks Price History
020406080
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Stock Performance (cont.)Stock Performance (cont.)
Modeling and ForecastingModeling and Forecasting
• Discounted Cash Flow• 3 Scenario:
– Base-case– Downside
• Base-case segments’ revenues – 10%• Adjusted Cost of Goods Sold
– Upside• Base-case segments’ revenues + 10%
• Relative Comparable Analysis
DCF AnalysisDCF Analysis
• Assumptions– Beta: 1.26– Risk Free Rate: 4.58%– Market Risk Premium: 6.42%– CAPM: 14.15%– Cost of Debt: 8.25%– Debt/(Debt+ Equity): 0.19%– Equity/(Debt+Equity):
99.81%– WACC
• Calculated: 12.66%• Bloomberg: 11.98%
– Growth Rate: 5%
• DCF Value per share:– Calculated WACC:
• Base: $28.95• Downside: $24.21• Upside: $35.70
– Bloomberg WACC• Base: $32.33• Downside: $27.03• Upside: $39.89
Relative Comparable AnalysisRelative Comparable Analysis
• Comparison Companies: – Microsoft– Real Network
Average Multiples MVSN Ratio Price
Average P/E 14.57 Earning 0.40 5.81
Average PEG 1.225Earning (G) 51.14 62.64
Average P/S 5.88 Sales 4.46 26.25
Sensitivity AnalysisSensitivity Analysis
11.98% 12.50% 12.66% 13.50% 14.00%4.0% 25.64 24.01 23.55 21.38 20.264.5% 26.98 25.16 24.65 22.26 21.045.0% 28.51 26.47 25.89 23.25 21.915.5% 30.27 27.96 27.31 24.36 22.886.0% 32.33 29.68 28.95 25.62 23.97
WACC
Gro
wth
Rat
e
Sensitivity Analysis
Correlation MatrixCorrelation Matrix
AEE AEOS CPRT FR JKHY JPM KMB MVSN MS SRCL SRZ WAG PortfolioAEE 1.000AEOS 0.260 1.000CPRT 0.319 0.150 1.000FR 0.452 0.249 0.427 1.000JKHY 0.174 0.128 0.331 0.247 1.000JPM 0.343 0.271 0.357 0.414 0.306 1.000KMB 0.213 0.085 0.344 0.277 0.148 0.245 1.000MVSN -0.020 0.092 0.169 0.199 0.208 0.214 0.087 1.000MS 0.188 0.148 0.268 0.356 0.371 0.588 0.228 0.282 1.000SRCL 0.099 0.118 0.052 0.196 0.272 0.220 0.084 0.038 0.181 1.000SRZ 0.180 0.008 0.104 0.131 0.213 0.096 0.104 0.083 0.153 0.176 1.000WAG 0.159 0.206 0.198 0.193 0.247 0.148 0.175 -0.118 0.140 0.246 0.030 1.000Portfolio 0.457 0.570 0.552 0.578 0.548 0.579 0.369 0.420 0.547 0.390 0.529 0.334 1.000
RecommendationRecommendation
• Hold– Reason:
• The current price of $27.84 is still between the range of $23 - $35
• Nature of the business – still growing• Negative Correlation with some of the holdings
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