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The Dawn of the "PCTV?"
Dear American Capitalist Reader,
At some point in the last eighteen months or so, technology finally caught up with man's fervent desire to show either himself or his fellow man in all sorts of silly, compromising or painful situations. Two things had to happen for this to occur - one, enough people had to be hooked up with high-speed internet access, and two, the average
desktop computer had to have enough juice to play videos.
The incredible success of YouTube, which makes no money and does not anticipate doing so for some time, as well as news that CBS, ABC and NBC all plan "video sites" for their shows proves that the way we get out "entertainment" has shifted away from television and in favor of computers. It is part of the convergence that Bill Gates spoke about all those years ago; eventually, the PC and the TV will morph together into one unit, and we will rent/watch/buy shows, movies, music videos and so on from the same piece of equipment. It is only a matter of time.
While the folks that make the video software, rendering chips and semiconductors will do well as this convergence continues, we think there is tremendous potential in a variety of smaller companies focused entirely on this niche. The firms that sell products and systems that enable network operators to provide digital services like video, audio streaming, video-on-demand, and high definition television are the leading edge of this trend. Plus, since we're still at the very early stages and YouTube's $1 billion deal with Google throws some immediacy onto what has been a distant future, these smaller firms are just beginning to break out of years of flat performance.
One of them has caught our eye. This company makes the systems necessary to stream large audio and video files over the Internet, as well as management products to help customers better organize their content. This firm just posted a breakout quarter - sales reached $64 million while earnings of $0.05 per share reversed a $0.04-per-share loss last year and five consecutive quarters in the red. With demand for video processing and video-on-demand equipment soaring, Wall Street expects this little firm - the market cap is only $568 million - to earn $0.22 per share in fiscal 2007. We think it might even do a little better, perhaps earning as much as $0.33 per share.
The stock jumped to a new 52-week high on the quarterly news, but we'd bet most of Wall Street has never even heard of this little firm. But it is tremendously leveraged to the deliverance of video content via the web, and as such we think it has a very bright future. We're going to be profiling this stock in a future issue of GRESSOR, so stay tuned!
Until next time,
Steven Lord, Editor, GRESSOR
