Signs of Progress: Digital Media Stocks on Display

If you want to see the latest forms of digital signage, take a look at  Times Square on New Year’s Eve. Digital displays, in all their electronic glory, are literally everywhere on that night. But thanks to the rapid growth of the digital media industry, digital signage displays showing video or television programming, advertising, even menus and street signs, are popping up everywhere.

LCD or LED signage, as well as plasma displays or projected images, have taken over cities, retail stores, hotels, restaurants, corporate buildings, even bathrooms and elevators. Smartphones, too, use the same digital media technology.

You can use digital media technology for integrating social and location-based interactivity so you can send Twitter messages, SMS and text messages to advertising displays. Digital signage displays can be controlled by personal computers or servers via proprietary software programs.

To date, China has led the world in the number of digital signage displays with the country’s largest digital signage firm, Focus Media Holding (Nasdaq: FMCN), operating thousands of displays. San Antonio, TX-based Clear Channel Outdoor Holdings (NYSE: CCO) is another huge outdoor advertising company with close to 1 million displays in more than 40 countries across five continents. But those are large companies with market capitalizations in the billions of dollars.

Smallcap investors have opportunities to invest in digital media, too, by focusing on such things as the hardware, software or network infrastructure that support

Times Square, New Year's Eve

the industry.

Brookings, SDbased Daktronics (Nasdaq: DAKT, http://www.daktronics.com/) designs, manufactures, and sells various electronic display systems and related products. It offers indoor and outdoor scoreboards, digit displays, scoring and timing controllers, statistics software, and transportation products comprising various light emitting diodes-based displays for road management, parking, mass transit, and aviation applications. The company did pay a dividend in December, even lumping an additional $0.40 on top of the regular payout, which is now twice rather than once per year. DAKT trades about 150,000 shares daily, has a market cap of $340 million and a 52-week range of $8.00 – $12.25. It closed April 20 at $8.08, up 1 cent.

Cincinnati, OH-based LSI Industries (Nasdaq: LYTS, http://www.lsi-industries.com/) provides corporate visual image solutions around the world.  The company offers exterior and interior visual image elements related to graphics for use in graphics displays and visual image programs. Its graphics products include signage and solid state LED video screens for the sports and advertising markets designing and engineering custom designed electronic circuit boards, assemblies, and sub-assemblies used in various applications.  LYTS trades near $7 with a $165 million market cap and an average daily volume of about 600,000 shares.  The 52-week range is $5.45 – $8.91. It closed April 20 at $6.71, no change on the day.

Prague-based Kit Digital (Nasdaq: KITD, http://www.kitd.com/) provides end-to-end video asset management software and related services to enterprise clients. It offers the KIT Video platform for managing Internet protocol (IP)-based video assets across browser environments, mobile and tablet devices, and connected television (TV) sets and Digital Signage. KITD also enables delivery of social video apps to connected TVs, set-top boxes, game consoles, tablets and smart phones.  KITD has had some hiccups lately. Its stock has a 52 week range of $5.93 – $12.73, a market cap of about $360 million and an average daily volume of about 1, 265,000 shares.  In March and April 2011, the company announced delayed their 10-K filing and announced changes in the board of directors and management as well as some indications that the company may be putting itself up for sale.  But it appears there has been some short covering and buying in the past weeks. The stock closed April 20 at $6.99, down 51 cents on the day.

Seattle-based RealNetworks (Nasdaq: RNWK, http://www.realnetworks.com/) makes the RealPlayer media player software on computers, including features and services that enable consumers to discover, play, download, manage, and edit digital video. RNWK develops and markets software products and services that enable the creation, distribution, and consumption of digital media and signage, including audio and video.   RNWK has a 52-week range of $6.81 – $15.08, trades nearly 140,000 shares daily, and has a $326 million market cap. It closed April 20 at $9.43, up 3 cents on the day.

A more vertically and horizontally integrated company is Poland-based ADV Group* (ADV’s ADR is GPVSY, http://www.grupa-adv.pl/) which trades on the OTCQX market in the U.S. (www.otcqx.com.) (ADV shares also trade on the main floor of the Warsaw Stock Exchange under symbol ADV.) A fast-growing internet and digital media advertising company, ADV is the leading new-media agency in Poland operating in digital communications, innovative new technologies, IT outsourcing, dedicated application design, and mobile device applications.  GPVSY has enjoyed revenue and earnings growth for the past few years, including 74 percent revenue growth in 2011.  GPVSY is a relatively unknown stock in the U.S. with very little analyst coverage. Its market cap is just under $50 million and its average daily trading volume is less than 100,000 shares daily.  The Polish ordinary listed ADV stock trades over 14 PLN or zloty – the Polish currency. (1 Polish zloty = 0.31 US dollars as of April 12) and has a 52-week range of 7.10 – 15.59 PLN.

*Client of Allen & Caron, publisher of this blog.

Brightcove IPO Filing Highlights Fast-Growing Online Video Sector

The announcement this week that Brightcove had filed an S-1 to raise up to $50 million in an IPO was not really a surprise. Rumors about an IPO have been circulating ever since the company, a cloud-based video platform provider, was founded seven years ago, according to Videonuze.com (http://www.videonuze.com/).

Brightcove’s S-1 filing gives investors a look inside Brightcove, what would be another “pure play” investment opportunity in the fast-growing and consolidating online video space. By the looks of the numbers, Brightcove is thriving in this industry and doesn’t seem to be suffering much in the current global economic downturn.

While still not profitable, Brightcove revenue was $28.4 million for the first six months of 2011, compared to $20.3 millin a year ago. And the company delivered about 700 million streams per month in the first half of this year, up 72 percent over last year. 

There are several small cap companies that fit loosely in this space, including:

Plainview, NY-based Neulion Inc. (TSX: NLN.TO, OTC: NEUL.PK, http://www.neulion.com/ an Internet Protocol television company (IPTV) that offers end-to-end solutions for delivering live and on-demand content to any Internet-enabled device. Neulion just reported a 37 percent increase in revenue for the second quarter, compared to a year ago. The company is still very small ($47.6 million market cap) and its stock closed Aug. 25 up 3 cents to $0.34, at the low end of its 52-week range of $0.21-$0.61.

Prague-based Kit Digital Inc. (Nasdaq: KITD, http://www.kitd.com/) provides cloud-based video management solutions. Formerly known as Roo Group, KITD has a $418 million market cap and closed Aug. 25 down 26 cents to $9.85, also at the low end of the 52-week range of $7.90-$17.32.

Plano, TX-based ViewCast (or ViewCast.com) Inc. * (OTCBB: VCST.OB, http://www/viewcast.com) develops hardware and software for the capture, management, transformation and delivery of digital media over IP and mobile networks. While always full of promise, ViewCast has not grown quick enough to generate traction in the market. ViewCoast just named a new CEO, John Hammock, formerly the company’s VP of sales, who aims to leverage his experience and contacts in the telecom, cable and other markets. The stock closed Aug. 25 down 1 cent to $0.23. Its stock has traded as high as $0.41 in the past 52 weeks, and as low as $0.19.

Cambridge, UK and San Francisco-based Blinkx PLC (LSE: BLNX.L or OTC: BLNKF.PK, http://www.blinkx.com/) provides video search and advertising services worldwide and calls itself “the world’s largest and most advanced video search engine.” It’s market cap is not listed and it surely is no small cap but we include it as an example of the energy in this sector. On Aug. 25, an otherwise down day in the market and on no discernible news, Blinkx closed up $2.99 to $105.24. The pink sheet stock was up 6 cents to $1.69.

Shanghai-based Tudou Holdings Ltd. (Nasdaq: TUDO, http://www.tudou.com/), which operates as an online video company in China, also had a good Aug. 25. TUDO traded up 91 cents (nearly 4 percent) to $25.01, close to its 52-week high of $27.75. Tudou stock went public earlier this month at $29 but dropped 12 percent on its first day of trading. 

* Denotes client of Allen & Caron Inc, publisher of this blog

Transition to HD Could Help Digital Media Company Stocks Survive Sagging Market

The advent of high definition video has surely been a boon to electronics retailers like Best Buy and CompUSA. But HD is also creating a “transition” in the marketplace for players in the internet TV and video streaming businesses. That’s a message from Dave Stoner, President and CEO of Plano, TX-based ViewCast * (OTCBB: VCST, http://www.viewcast.com), during his Aug. 16 results conference call. “We are seeing a demand shift…the transformation and migration to high definition we have been expecting for more than a year now seems to be happening…”

That has to be good news for a group of small caps focused on various areas in the digital media space. For the moment, the overall market segment is dragging many small caps down, but perhaps this HD transition may serve as a catalyst to help prop them back up.

For instance, Prague-based KIT digital (Nasdaq: KITD, http://www.kitd.com), which provides internet protocol-based video asset management solutions, reported record second quarter results on Aug. 16 with revenue up 120 percent year-over-year to $23.1 million. No doubt some of that growth came through acquisitions, but it seems to show that the HD transition could be helping them as well. The stock price was dragged down last week like many small caps, from $9.49 mid-week all the way down to $8.49 mid-day Aug. 23, which could indicate an opportunity if the market rights itself sometime soon.

San Diego-based DiVX, Inc. (Nasdaq: DIVX, http://www.divxnetworks.com) also reported a strong second quarter Aug. 4, only to have its stock price weakened shortly afterward. The company, which provides video compression-decompression software and digital video technologies for digital televisions, Blu-ray players, set top boxes , recently announced it would be acquired by Novato, CA-based Sonic Solutions (Nasdaq: SNIC, http://www.sonic.com), which develops products and services to manage digital media content. Its stock is trading at about $7.67, down from its 52-week high last spring of $9.02. Sonic’s stock has been on the rebound since dropping to $7 July 20. On Aug. 23 it was trading at $7.86.

Pompano Beach, FL-based Onstream Media (Nasdaq: ONSM, http://www.onstreammedia.com) reported sequential growth of 7.2 percent over its fiscal year second quarter on Aug. 16 but relatively flat numbers compared to the same period in 2009. Onstream, an online service provider of Internet broadcasting, corporate web communications and virtual marketplace technology, recently debuted its MarketPlace 365 platform for virtual tradeshows, which President and CEO Randy Selman called a “game-changing technology” because virtual tradeshows could become a growth driver as companies want to extend existing physical shows. Subway is the first customer.

As for ViewCast, CEO Stoner reported 26 percent top line growth year-over-year and the third consecutive quarter of sequential improvement. Highlights of the second quarter included the debut of its ViewCast Media Platform (VMp) at the National Association of Broadcasters tradeshow.

* Denotes Allen & Caron client

Whither Telcom, TV and the Internet? 3 Aspects of the Same Thing?

One thing we can count on, even when economists are talking about a W-shaped recession, is that there will continue to be technology advances that wow everyone, and our communication lives will continue to evolve at warp speed.  The fact that there were so many people lined up to buy iPhones last week that AT&T had to scream and run is just a symptom of the power of the nexus between video, telcom and internet, which are fast becoming just different aspects of one triune thingamabob.

Apple had to call a halt to iPhone 4g sales at 1.7 million in the first 3 days, according to The Observer: http://www.observer247.com/2010524/short-supply-halts-apple-iphone-4g-sales-at-17-million/.  Well, you know you’re doing ok when a major failure is the inability of your supply line to keep up with the demand that is growing like a nuclear-contaminated varmint in an old movie.

The latest "gotta-have" -- iPhone 4. Ain't it sweet?

But seriously, folks

All the pundits could be wrong, and it could still be possible to hit a 4-bagger or better on AAPL shares, but we’re kinda doubting it.  Most often the place to hit long balls is the small-cap world, and while we don’t EVER recommend investments, we have a few ideas of companies to look at if you want to know which direction things are heading.

First of all, have a look at Iolo Jones’s latest: VidiActive (http://www.vidiactive.com).  Jones has been shuffling ideas for a long while and although he has not hit the bull’s eye so far, he’s always in the right place about a nanosecond too early.  And like a lot of technologists, the people at VidiActive tell you about their ideas and widgets in breathless Newspeak, stringing together words that don’t seem to match each other.  But odds are that your kids will understand why it is not just cool but necessary that they be able to send video programming from their handhelds to their televisions and make appointments for their friends to watch the same videos at the same time in different places, creating Virtual Private Television networks on an ad-hoc basis.  VidiActive is privately held, but you can make book on these ideas showing up in Best Buy pretty soon.

Where might you look in the world of small companies to see something that is a peek into the future of technology?

Start with Oslo-based Opera Software obviously.  The Opera Mini browser has hitched its wagon to a star, and is the only non-Apple browser canonized by AAPL to be used on the iPhone.  Aw c’mon it’s a global economy, you can look at Oslo stocks!  Whether you look at the stock or not, someone right near you right now is downloading an Opera browser; there are hundreds of millions of users all over the world.  Opera Software trades as OPERA.OL in Oslo, and also trades in London and Frankfurt; it also has a listing on the OTCQX market in the US: OPESY.PK.  Have a look at http://www.opera.com for a slick and easy-to-understand tour of Opera software.  Shares closed in Oslo today at about 23.50 NOK, which is — wait wait don’t tell me — about US$3.65.  If you bid for the OPESY shares, there are two shares in each OPESY, so the equivalent would be US$7.30.  Tiger by the tail.

NewTeeVee’s Ryan Lawler wrote up Polaris Venture Partners-funded JibJab this week, saying that they have processed 1,000,000 transactions over the last year. http://newteevee.com/2010/06/28/jibjab-doing-a-million-transactions-a-year/ JibJab’s website looks a little like a skeeball prize shop on a summer boardwalk, but it is humming, virtually spinning like the Droid thing in the Motorola ads.  Again, it’s not public YET, but it looks like one of those companies that could be the Next Big Thing.  Their principal services seem to be personalized videos under the “Starring You” label, and unlimited e-cards on an annual subscription, and since the founders seemingly believe that advertising doesn’t work for online video, you can expect to be untroubled by ads, but there will be some cash on the drum each time you download something.

And now the first television commercial has been shot using an iPhone 4: http://newteevee.com/2010/06/30/iphone-4-camera-used-to-shoot-tv-commercial/

It’s worth keeping an eye on the last generation of IPTV companies, including Prague (Czech Republic) and NY-based KIT Digital (Nasdaq: KITD; http://www.kitd.com/), which enables virtually anyone to create an ad-hoc network to distribute video or other material over the internet, whether wireless or with a set-top box, etc.  KITD has not exactly set the world on fire, but it’s rewarding its longterm holders with profits even after a bounce earlier in the year, shares selling for $9.09 vs a year-high of $15.19.  KITD is growing like a classic roll-up, but not buying a bunch of small mom-and-pop operations — buying various pieces of geographic and technology maps.  It may not be the biggest IPTV company of all, but it will not be left out in the cold, and it has shown the ability to raise equity when necessary, which ain’t all bad either.

Many are expecting a big growth spike in triple-play and quad-play packages over the next few years, following a study published June 30 of the Dutch telecom sector by Pyramid Research (http://www.pyr.com) : http://iptv.tmcnet.com/news/2010/06/30/4878728.htm

And lest you think IPTV is not a broad phenomenon, look at Clarksdale MS: http://markets.chron.com/chron/?GUID=13632304&Page=MediaViewer&ChannelID=3197.  Big Star Media Group (Pink Sheets: BMGI; http://www.bigstarmediagroup.com/) is looking for the next Elvis Presley (not the ghost of the late one), and is establishing its own IPTV network: Clarksdale TV, featuring “proprietary Blue-related music news and entertainment programming.”  If you want to tune in, have a look at the Big Star website.  BMGI  shares trade for less than a third of penny, by the way, and in no great quantity either — which may mean it’s a bargain, but certainly means that Big Star has not been discovered by Hollywood yet.

And just for fun, have a look at PhoebeWorks entertaining smiley comedies: http://www.phoebetv.com — the lastest and greatest is “Handsome Town,” guaranteed to make you laugh (or at least smile, dammit).

Autumn Leaves, October Baseball, DEALS-DEALS-DEALS

The World Series is in sight.  The market is reaching for Dow 10,000.  Topcoats are coming out of closets in the upper midwest and northeast.  Leaves are turning red, orange and gold in the hardwood forests.  And that other cheery mark of autumn is back with us this year as well: deal flow.  Although it is clearly out of our bailiwick, this morning’s Blackstone article is a keynote: CEO Stephen Schwarzman is looking for 8 big IPOs in the near future: http://finance.yahoo.com/news/Blackstone-CEO-sees-up-to-8-apf-176726039.html?x=0&sec=topStories&pos=2&asset=&ccode=.  Call it a series of liquidity events for Blackstone; call it a mitzvah for the NYC-based asset manager.  At the same time, Kohlberg Kravis Roberts is looking to monetize its purchase of Dollar General Stores in an IPO.  The earth trembles at the footfall of giants.

But the smaller fry are active as well, and that may be considerably more important for the vast majority of us.  Throwing a dart at the board, look at Milwaukee-based employee-owned investment bank, RW Baird, fairly recently emancipated by former owner Northwestern Mutual Life, whose headquarters is virtually across the street.  In an industry that was quiet as a tomb a year ago, Baird has completed 7 follow-on offerings since the week before Labor Day.  Those 7 offerings total $831.6 million raised, probably a better-than-expected September.  And the deals were all over the place: http://www.rwbaird.com/ci/investment-banking/equity/equity-transactions.aspx

Point is that Baird is not alone in making hay while the sun shines (a particularly autumnal saying).  One of the sure-fire signs of life in the deal business in Manhattan is the line-up of Lincoln Towncars outside the big law offices at night, when the indentured young lawyers work on prospectus alterations, re-model changing forecasts, etc.  An informal survey shows very long lines outside Cravath Swain & Moore in Worldwide Plaza on 8th Avenue, and outside Proskauer Rose in the Morgan Stanley building on 48th St.  Hmmm.

Deal Flow Media’s database service, PrivateRaise, put out a press release this morning announcing that deal flow in the PIPE market “returned to historical levels” in the 3rd quarter: http://www.privateraise.com/press/2009-10-14.php.  US companies raised $7.9 billion in 290 PIPE deals.  Microcap issuers raised $3 billion in 242 deals in the quarter, according to Brett Goetschius, ed of The PIPEs Report.

In our sector of the market, we tend to see more PIPEs than registered offerings, although smaller companies are hastening to put shelf registrations on file, and smaller underwriters are increasingly doing “registered-direct” offerings, which combine a lot of the marketing advantages of a PIPE with the immediate-liquidity of a registered offering.  Another dart thrown lands on San Francisco-based Merriman Curhan Ford* (Nasdaq: MERR; www.merrimanco.com).  As an investment bank, MCF is specialized in Cleantech, Internet/Media and Healthcare, and the deal flow there has noticeably improved from their published tombstones.  Two deals (a financing and an M&A transaction) for Prague-based KIT-Digital (Nasdaq: KITD; http://www.kitd.com) , a debt deal for Bellevue WA-based Coinstar Inc (Nasdaq: CSTR; http://www.coinstar.com/) , a debt deal for Houston-based Rick’s Cabaret (Nasdaq: RICK; http://www.rickscabaret.com/), an M&A deal for Raptor Pharmaceuticals (Nasdaq: RPTPD; http://www.raptorpharma.com/), a follow-on offering for Mountain View CA-based Vivus (Nasdaq: VVUS; http://www.vivus.com/), a registered-direct deal for Gaithersburg MD-based GenVec Inc (Nasdaq: GNVC, http://www.genvec.com), a follow-on offering for Bethesda MD-based Micromet Inc (Nasdaq: MITI, http://www.micromet.de/), and a private placement for Australian coal producer Cougar Energy.  While not the investment banker’s full-employment act, it is a lot better than packing your things in a cardboard box and waiting to be checked out, which was what was happening a year ago in midtown Manhattan.

From what we can tell, much of the deal flow is entering the stream through small investment banks commonly called “boutique” banks — many of whom do not offer the “full-service” that bigger, more traditional banks offer.  They may or may not be broker-dealers, for instance.  They may or they may not have a proprietary trading desk or market-making operation.  They may or they may not have a sales force, many of the smaller boutiques choosing to outsource virtually everything but the brain-power and essential connections and networks of the partners.  Sometimes it is hard to tell a banker from an asset manager in these cases, because many of them co-invest in their deals a la the traditional UK or European “merchant bank.”

Like many companies in our space, we are watching several deals-in-the-making, and have conducted several “beauty pageants” for companies looking for investment banking services.  Although the pace of deals does not seem feverish as it did a couple of years ago, it is definitely oiled up and ready to rip.  And many of the recent big-deal offerings have performed quite well, thanks very much.  Look at the stock of A123 Systems (Nasdaq: AONE), which has virtually doubled the investment of people who bought on the recent offering and held the stock instead of flipping it.  And, stripped of the glamor, A123 is basically an early-stage company whose horizon is pink with sales potential, but whose glory days are putatively out there in the unknown future.

Stay tuned, lots of new products hitting the market week by week. 

*Allen & Caron, publisher of this blog, has provided project services to MCF for certain of its international ADR clients.

Small Companies with Great Growth Trajectories

My good friend John Westergaard used to tell me regularly that investors do not want to buy into small companies — instead they want to buy into companies that are going to be big companies, which lets them “get in on the ground floor.”  Keeping that in mind, I decided to scout around and see if I could find some likely candidates.  I looked for companies with fast-accelerating revenues, big niches that they can dominate, or assets that could make them much bigger very quickly. 

Please keep in mind that we never recommend stocks.  We write about companies that we find interesting, and we always suggest that investors do their own diligence before investing.

If you are interested in finding companies that are on trajectories that may make them a lot bigger, here are a handful of interesting companies that you may not have noticed yet.

First, consider New York City-based interCLICK Inc (OTC BB: ICLK, http://www.interclick.com/), a behavioral advertising networker that is growing at a furious rate based on their ability to generate a cost-per-customer that gives advertisers an attractive “ROI” and a steady stream of buyers.  I heard CEO Mike Mathews present at the Rodman & Renshaw conference last week, and found the story compelling.  Revenues for the most recent quarter (keep in mind that we are in a troublesome economy) were up 126% year-over-year, and their growth chart is beginning to look Matterhorn-ish.  The stock closed at $2.05 on Friday the 11th on volume of 225,000 shares, close to its 52-week high of $2.25, and far above its low of $0.45, for a current market cap of about $85 million, which puts them at less than 2 times what looks like this year’s likely revenue, and just over par with 2010 revenue if it continues to rise the way it is rising now.  The management has a messianic attitude about their techniques and know-how, and a big-company client list as long as the CEO’s arm.

Then have a look at New York City- and Prague-based KIT Digital Inc (Nasdaq: KITD; http://www.kit-digital.com/), a video enablement company that allows big brands, telcos and entertainment companies to distribute video content via the Internet, mobile networks (think cellphones), and IPTV set-top boxes.  Their business is a little difficult to understand because it is largely unseen by viewers, but their most recent quarterly results were up 91% year-over-year, and seem to be running at a rate of $40 million minimum, with a current market cap of about $37 million.  KITD presented at the Rodman & Renshaw conference as well, and has a future lineup of other conferences that you can find out about on their website.  The stock recently moved from the Bulletin Board to Nasdaq, and closed at $7.72 on Friday, vs a year-high of $9.80.  KITD suffers from low trading volume, probably largely because of its low level of awareness among investors.

Next, cast your baby blues at Scotts Valley CA-based VirnetX Holding Group* (NYSE Amex: VHC, http://www.virnetx.com/), which has an IP portfolio of internet security patents that sprang largely from super-spook midcap company, SAIC Inc (NYSE: SAI).  Their patents cover the ability to establish secure Virtual Private Networks among computers, mobile devices, and other devices  with a single mouseclick, as well as the right to issue Secure Domain Names.  Current interest is focussed on their gargantuan lawsuit against Microsoft which, if VirnetX prevails, could give them a gazillion-dollar award.  But the Secure DNS part of the business could well justify a significant increase in value separate from the MSFT litigation.  What’s the catch?  VHC is pre-revenue, and has yet to announce their first significant licensing deal, most likely because potential customers are waiting to see the outcome of the MSFT case, which got a favorable nod from the court that is trying the case in its “Markman” opinion this year.  VHC closed at $2.89 on Friday, far off its 52-week high of $5.00, and the shares have average trading volume of 152,000 shares.

Check out London-based Sirius Exploration PLC (http://www.siriusexploration.com/) , which owns some salt and potash mining properties and options in the US and Australia — properties that are envisioned by the company to become storage locations for unused energy in the form of compressed air.  Sirius shares trade feverishly on the London AIM, closing Friday at 0.14 GBP on volume of 8.6 million shares.  Their US ADR trades on the Pink Sheets and closed Friday at $107.60, up $21.00 on the day, and vs a 52-week low of $13.00.  The problems are that there is almost no volume in the US trading, and there seems to be very little recent news on Sirius (the most recent news on Yahoo Finance is from April), as well as a fair level of skepticism on the Internet.  It’s a mining company — dig deep in your due diligence, please. Caveat emptor!!

Finally, look at Foster City CA-based SciClone Pharmaceuticals Inc (Nasdaq: SCLN; http://www.sciclone.com/), which is developing and commercializing drugs for cancer and infectious diseases in China and internationally.  It has drugs for hepatitis B & C, as well as a raft of cancers, including pancreatic cancer, Stage IV melanoma, and liver cancer.  SCLN closed at $4.83 on Friday, up from a year low of $0.63, on volume of 555,000 shares, with a market cap of about $225 million.  Clearly someone is interested with trading like that and a fast rising valuation.

Mr Westergaard died in 2003, but I have a sense that he may be “up there” keeping an eye on these and other small companies with interesting potential.

*client of Allen & Caron, publisher of this blog.

A Digital Media Roundup — Something Old, Something New

Trying to sort through the various players — public and not-yet-public and getting-ready-to-go-public — in the general arena of IPTV is like trying to straighten out a plate of spaghetti.  If there is any industry segment that is likely to light up the IPO sky whenever IPOs come back, IPTV might be it.  The number of smart-looking little companies that claim to have both partners and technology is dizzying.  What it says to me is that there is a lot of talent in this business, and there is probably a business in this business too. 

We do not recommend stocks.  We assume you will do your own diligence.  We simply talk about companies that interest us.

There are way more nonpublic companies than public.  If you look at some of the more visible public companies, they would include Dubai- and NYC-based KIT Digital (EBB: KDGL, http://www.kit-digital.com), which includes names that are recognizable to people who have prowled around this territory: The Roo Group, Narrowstep (assets only), and others.  A triple-play competitor with a foot in each of 3 methods of dissemination, KIT Digital may also be the only player in this space that seems like it may be poised to (a) break even on cash and (b) be profitable some time soon, leaving aside acquisition write-offs, since KIT has been an active acquiror.  KDGL shares are trading at $8.75 vs a 52-week high of $15.40 (there was a reverse split that creates anomalies in pricing), on fairly low volume of 7,000 shares and a market cap of about $40 million.

Pompano Beach, FL-based Onstream Media (Nasdaq: ONSM, http://www.onstreammedia.com/)  is another “familiar” name, but seems like it may be slipsliding these days, according to their update news release dated April 22.  They apparently backed out of an announced acquisition of the remains of tech innovator, Narrowstep, allowing KIT to pick up the choice piecese, and leaving the corporate shell behind with David McCourt, who is now seeking damages for the breakup.  Then ONSM raised a fairly draconian $750,000 to $1 million in loans with the first repayment due in 2 weeks, and interest at 12%, as well as 1.5 million shares.  ONSM has also been notified that it is liable to suspension from Nasdaq.  Nonetheless, ONSM claims illustrious customers like AXA Equitable, BT, Dell, Disney, MGM, PR Newswire and even Shareholder.com (part of Nasdaq), so it is not to be discounted.  Its shares are trading at $0.26 vs a high of $1.03 on average volume of about 62,000 shares and a market cap of about $11.3 million.

There are various players in the device side of the IPTV business, including Plano, TX-based ViewCast Inc* (EBB: VCST, http://www.viewcast.com), which makes products that capture, digitize and manage content.  In spite of reporting net income for 2008 (which becomes negative with dividend payments, complicated, but not troublesome), ViewCast is selling for a discount to last year’s revenues of $17.4 million, with VCST shares at $0.34 vs a year-high of $0.54 and a market cap of $12 million.  Current ratio of almost 3:1, and cash in the bank.  Go figure.  If you wanted to see a privately held company in an allied area, you could look at Canada’s Markham, ONT-based Digital Rapids, http://www.digital-rapids.com or Australia’s Vividas (http://www.vividas.com). 

Clifton Park, NY-based On2 Technologies (NYSE Alternext: ONT, http://www.on2.com/)  is in the video compression biz too, and its shares trade very robustly at $0.36 — average volume of 500,000+ shares, for a market cap of  $62 million.  Clearly a lot of fans, even though the stock is about a third of its year-high of $1.06.  Santa Clara, CA-based MacroVision (Nasdaq: MVSN, http://www.macrovision.com/) is a much larger company in this space, market cap of $2.1 billion, stock price of $21.10 (a new 52-week high today). 

The swarm of smaller companies is impressive — and hard to find out much about.  Most of them present themselves on their websites as virtual — it is frequently hard to figure out where they are based. They include Atlanta-based Endavo (http://www.endavomedia.com);  NY-based Verticom (http://www.verticom.tv), which is the current location of former Narrowstep Pres Carolyn Wall;  Mountain View, CA-based Verismo Networks (http://www.verismonetworks.com); NY-based NextNewNetworks (http://www.nextnewnetworks.com); EQAL (http://www.eqal.com) — about which see this burbly HuffPo article: http://www.eqal.com/2009/04/30/the-future-of-entertainment-eqal/.  It would continue with NY-based BlipTV (http://www.blip.tv), which has a homepage that is worth seeing for its entertainment value.  And of course there is the seemingly UK-based Babelgum (great name, right? http://www.babelgum.com), and another familiar name, Joost (http://www.joost.com).   There are lots more of these small nonpublic companies, including the tantalizingly named ZillionTV (http://www.zilliontv.tv),  and they should start to pepper us with reverse mergers, VC investments and IPOs over the next couple of years, that is, if they survive and no one buys them first. 

The M&A and investment banking opportunities seem virtually endless, and some of the banks to watch on these deals are BMO Capital Markets, Merriman Curhan Ford, and Jefferies Inc.  But there are lots of others too.  And notice that I wrote this whole article without mentioning Hulu and YouTube (until now).  LOL.

*Allen & Caron client