A few months after it updated its flagship TV Guide magazine, Gemstar-TV Guide International
Back on Oct. 17, Gemstar rolled out a new TV Guide, replacing the familiar digest-sized book with a full-sized periodical that increased its focus on personalities and entertainment. The results so far have been impressive. However, the upgrade could have come early, especially for a company that hasn't been so doing well lately.
The first 11 installments of the new TV Guide brought in a 38% increase in terms of average weekly sales compared with sales of the digest version in the third quarter of 2005. Subscription cancellations were less than expected. And the company achieved an advertiser rate base 50% greater than it thought possible. A planned price increase, as well as a change in certain aspects of the retail distribution model, might negatively affect sales going forward. But I'd nevertheless say that the momentum behind the new TV Guide is quite good. Any price increase or change in distribution stands a decent chance of being adequately absorbed.
I wouldn't buy the stock, though. For the past three years, the company has reported net losses -- $94 million in 2004, $577 million in 2003, and $6.4 billion in 2002. In addition, operational cash flow has been inconsistent: The company generated $103 million of operational cash in 2002, dropped that figure all the way down to $5.1 million in 2003, and lifted it back up to $387 million in 2004. Consequently, free cash flow generation fluctuated, too, and was negative in 2003 as well as over the past four quarters.
Granted, Gemstar-TV Guide might be spending money to secure itself a better future, and in the short term, operational losses might be necessary to get things going again. But the stock has a long way to go to prove itself to the market. Until I see the new initiative driving better earnings and cash flow, I'll ignore the upgrade and sit on the sidelines.
Some past Takes on Gemstar-TV Guide: