Halloween's hobgoblins may have come and gone, but investors in Macrovision (NASDAQ:MVSN) still have the shivers. And after seeing what happened to the stock after each of the past two earnings reports, you can't really blame them.
In February, the company crushed Wall Street's Q1 earnings estimates, yet reaped none of the usual investor enthusiasm because it also lowered Q2 earnings guidance. When Q2 rolled around, the company hit its previously lowered estimate -- but then lowered guidance again, predicting no sequential growth in Q3 (the one that gets reported tomorrow) and fewer profits than analysts were expecting for the year as a whole.
And so here we are today, wondering what dire news the company will announce Wednesday afternoon. Analysts aren't feeling optimistic. They predict $47 million in revenues -- a 4% decline against last year's number -- and agree with the company's own prediction of $0.16 in profits (and just "pro forma" profits at that), which would make for a 27% year-on-year decline. So, yes, Fools, things are looking bleak for Macrovision.
Whatever happens tomorrow, that analyst pessimism may make the company an attractive investment. Looking over its income statements and cash flow statements for the past 10 quarters (registration required), I noticed that in eight of the past 10 quarters, Macrovision's actual free cash flow exceeded its reported GAAP net income, and usually by a wide margin. Moreover, in full-year periods, Macrovision has generated more free cash flow than GAAP net income in all of the past six fiscal years. So things aren't really as bad as GAAP makes them seem.
Also, as bad as Macrovision's GAAP situation may look in recent quarters (and as bad as it may well look tomorrow), the company still maintains an impressive client list. Its 10-K lists moviemaker Lion's Gate (NYSE:LGF), satellite broadcasters Echostar (NASDAQ:DISH) and DirecTV (NYSE:DTV), and cable hardware manufacturers Scientific-Atlanta (NYSE:SFA), TiVo (NASDAQ:TIVO), and Motorola (NYSE:MOT), all as being licensees of its technology. So whatever the profits picture looks like, clearly the company's products remain in demand.
With analysts focusing all their attention on Macrovision's guidance and pro forma results, "disappointing" results tomorrow just might present Foolish investors an excellent opportunity to zig when Wall Street zags.
Read all about Macrovision in our previous writings:
- Macrovision's Micro Profits
- Macrovision Gets a Black Eye
- Macrovision Takes a Hit
- Macrovision Sees Big Profits
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Fool contributor Rich Smith does not own shares of any company named above.
