Next Wednesday night, we'll see a fresh earnings report from SeaChange (NASDAQ:SEAC), which makes equipment that provides video on demand. Pay no attention to the man behind the curtain -- we're taking an early look at the company's recent business.

What analysts say:

  • Buy, sell, or waffle? Only five analysts follow this micro-cap company today. Three of them want to buy, and the other two are holding. In our own Motley Fool CAPS investor intelligence database, it's a three-star stock today based on over 75 user ratings and, as such, is prone to forays into four-star territory.

  • Revenue. $41.4 million would appease the hungry Wall Street crowd, representing 25% growth over last year's $33.2 million.

  • Earnings. The average analyst expects a $0.10 loss per share, smaller than the $0.15 per-share loss seen a year ago.

What management says:
In the latest earnings report, CEO Bill Styslinger said that SeaChange is upping its investments in research and development with new engineering hires, selling a subscription video-on-demand service to at least five major customers, and gaining traction in developing markets like Brazil, Russia, India, and Germany. BRIG? What happened to BRIC? But I digress...

What management does:
Rising gross margins plus accelerating revenue growth equals evidence of high demand for the company's products and services, a trend unlikely to abate anytime soon. The video-on-demand revolution hasn't even started yet, really -- it's still in the planning stages. SeaChange will no doubt become reliably profitable before the general public is hit by the inevitable marketing hurricane that cable operators and their telephonic rivals will unleash when the time is right.

Margins

10/2005

1/2006

4/2006

7/2006

10/2006

1/2007

Gross

40%

41.3%

42.4%

46.6%

47.8%

47.2%

Operating

(13.7%)

(13.5%)

(16%)

(7.3%)

(5.1%)

(4.6%)

))Net

(9.3%)

(9.8%)

(12.6%

(5.8%)

(4.9%)

(5.1%)

FCF/Revenue

(24.1%)

(26.5%)

(23.9%)

(20.4%)

(8.7%)

(4.1%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
And that time is fast approaching. Every yard of fiber optic cables buried by Verizon (NYSE:VZ) or AT&T (NYSE:T), every back-end DOCSIS upgrade or switched digital video system installed by Comcast (NASDAQ:CMCSA) or Time Warner Cable (NYSE:TWC), every new IPTV set-top box designed by Motorola (NYSE:MOT) or Cisco's (NASDAQ:CSCO) Scientific-Atlanta -- all of those things are tiny steps taken toward the bandwidth-intensive on-demand programming and interactive entertainment of the future.

SeaChange is an important piece of that puzzle, having already figured out how to push content out at the drop of a hat to thousands of customers per node. The biggest question in my mind isn't whether SeaChange will do well, but how long it will stay independent. It's the kind of specialized business that would fit nicely in a large company with entertainment tech aspirations, such as Motorola or Cisco.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure will help you find the road ahead.