DivX issues disappointing guidance, hits 52-week low
Digital media company DivX, Inc. (Nasdaq: DIVX) reported fourth-quarter earnings a penny above the consensus on Wall Street, but issued disappointing guidance for 2008 that sent shares crumbling to a 52-week low.
Shares of DivX plummeted 29.54%, or $3.01, to a 52-week low of $7.18. Shares have been trading in the range of $8.78 to $23.76 for the past 52 weeks.
The San Diego, Calif.-based company said it expects earnings to range from $0.44 to $0.52 per share on revenues of $95 million to $100 million due to higher product development costs.
Seven analysts polled by Thomson Financial are on average forecasting revenue of $104.24 million for 2008, while five analysts polled by Thomson Financial are on average projecting earnings of $0.67 per share.
“Guidance for 2008 was substantially below consensus,” wrote Avondale Partners analyst John Bright. “We continue to believe that DIVX has an attractive licensing business model with the potential to tap into online video distribution. However, DIVX also has a transition period ahead of it.”
Bright said he sees 2008 as a transition year in which DivX will invest in new initiatives, including forming agreements to become involved in online video distribution whether with "retailers" such as Netflix, Inc. (Nasdaq: NFLX), Blockbuster Inc. (NYSE: BBI) and CinemaNow. The analyst also noted the company will expand into new product categories beyond DVD players such as Blu-Ray players, and new certifications such as DivX HD and a new H.264 certification.
On account of the new guidance, Bright lowered his revenue estimate for 2008 to $97.5 million from $98.5 million, but raised his 2008 EPS estimate to $0.48 from $0.46 on account of changes to operating expenses, and the analyst’s inclusion of the impact of DivX’s share buybacks.
For the fourth quarter ended Dec. 31, 2007, the company recorded non-GAAP net income of $5.6 million, or $0.16 per diluted share, a penny above the $0.15 eight analysts surveyed by Thomson Finanical were on average forecasting. For the fourth quarter of 2006, DivX recorded earnings of $0.23 per share.
Non-GAAP net income and EPS excluded non-cash share-based compensation of approximately $6.4 million, the company’s Stage6 operating costs of approximately $3.5 million, impairment of acquired intangible assets attributable to the write-off of additional milestones related to Veatros and amortization of purchased intangible assets related to MainConcept of $271,000.
These four items were offset by an income tax benefit during the fourth quarter from the release of valuation allowances of approximately $4.6 million, or $0.13 per diluted share.
GAAP net income for the fourth quarter of 2007 was approximately $3.7 million, or $0.11 per diluted share.
