MACROVISION CORP (MVSN)

[kenco]

Macrovision: Top Dog Of Copy Protection


Macrovision: Top Dog Of Copy Protection

John Dobosz, 12.02.04, 1:09 PM ET

Stock Of The Week

NEW YORK - Michael Ozanian, editor of Forbes Earnings Quality Report, recommends buying shares of Macrovision, the Santa Clara, Calif., developer of copy protection and electronic licensing and rights management technologies.

For the nine months ended Sept. 30, 2004, sales climbed 38% to $122.5 million, while net income increased 10% to $20.9 million. Greater demand from customers, especially DVD marketers, boosted revenue, while higher research and development costs resulted in a smaller jump in earnings. Macrovision (nasdaq: MVSN - news - people ) shares are up 22% in the past year, closing Dec. 1 at $27.49, or 30.8 times expected 2004 earnings of $0.89 per share. The company's market capitalization is $1.35 billion.

Macrovision makes its money by licensing its technology to Hollywood studios; independent video producers; hardware and software vendors; music labels; consumer electronics, personal computer and digital set-top box manufacturers; and digital pay-per-view and video-on-demand network operators. Although still substantially below its all-time high of $107 hit in late 2000, MVSN is still up 1,130% since its March 1997 initial public offering.

"Wall Street loves this stock because MVSN's technology is embedded in virtually all of the DVD recorders entering the market and in the 280 million DVD devices installed throughout the world," says Ozanian. "MVSN's copy protection and rights management technologies have also been utilized on over 6 billion DVDs and VHS cassettes, 200 million CD-ROMs and 150 million music CDs."

Ozanian recommends Macrovision because of the company's strong financial performance as well as the investments it's making to keep its market-leading position.

"At the end of 2001, the company was spending 9% of sales on R&D. Last quarter it plowed back 17 cents of each dollar of sales into R&D," observes Ozanian.

He adds, "When a high-tech company like MVSN boosts R&D spending, it is in effect sacrificing current earnings growth for future earnings. But that is the best way to create the new products it needs to stay ahead of its competitors, and it also shows that the company has good earnings quality, because it has not been padding its current earnings by skimping on R&D."

In coming quarters, Macrovision plans to roll out several new products, including a peer-to-peer file-sharing content management service.

Ozanian is comfortable with the company's valuation based on its growth and notes that its P/E ratio is slightly below that of the Nasdaq 100 Trust (nasdaq: QQQQ). Ozanian's 12-month price target on Macrovision is $31 per share.

http://www.forbes.com/investmentnewsletters/2004/12/02/cz_jd_1202gurusow.html?partner=yahoo&refe....


Of course their figure for music CDs is incorrect and should be 400M (refer recent Macrovision PR) not 150M. Macrovision's volume share of protected music CDs worlwide (excluding Sony who use their own protection) is 98.5% with 400M CDs protected. SunnComm has approximately 1.5% of the worldwide market with 6M CDs.