On Thursday night, a second-quarter business update from SeaChange (NASDAQ:SEAC) hits the news wires. One Fool stands ready to serve -- in a bright yellow rain slicker and rubber overboots, size 13.

What analysts say:

  • Buy, sell, or waffle? Four out of five Wall Street firms say you should buy this stock; the fifth analyst just wants to hold for now. In our Motley Fool CAPS database, SeaChange recently shot to five-star fame, with only three out of 106 users giving the thumbs-down.
  • Revenues. The Street is looking for about $41 million this quarter, down from $45.4 million last year.
  • Earnings. Every analyst expects a net loss this time, $0.06 per share of it on average. A year ago, SeaChange turned a $0.02 profit per share.

What management says:
CEO Bill Styslinger wasn't happy with last quarter's weak revenues, but he did see a couple of bright spots. The Comcast (NASDAQ:CMCSA) partnership is going swimmingly, and the company is "in active discussions with four large North American service providers for VOD master purchase agreements that will include software subscriptions."

Since the pool of cable providers here in the States isn't too deep, especially if you're looking for "large" ones, we can guess at some of those four prospective partners. Time Warner Cable (NYSE:TWC) is already on board, but adding customers like Cablevision (NYSE:CVC) or Shaw Communications (NYSE:SJR) would be both a nice revenue booster and profile-raising publicity stunt.

What management does:
Gross margins are expanding, trailing profits are closing in on positive territory, and free cash flow is already there. At the same time, revenue growth is accelerating quarter by quarter. If this isn't the early stage of an explosive growth story, I don't know what is.

Margins

1/2006

4/2006

7/2006

10/2006

1/2007

4/2007

Gross

41.3%

42.2%

46.6%

47.8%

47.2%

47.1%

Operating

(13.5%)

(16.6%)

(7.8%

(5.6%)

(4.6%)

(3.2%)

Net

(9.8%)

(12.6%)

(5.8%

(4.9%)

(5.1%)

(5%)

FCF/Revenue

(26.5%)

(23.9%)

(20.4%

(8.7%)

(4.1%)

2.2%

Y-O-Y Growth

1/2006

4/2006

7/2006

10/2006

1/2007

4/2007

Revenue

(19.7%)

(13%)

13.2%

25.5%

27.8%

30.4%
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:
SeaChange has been operating for years and mostly spinning its wheels -- but I think this is the time to get excited about the company's prospects. We're at an inflection point in the history of the entertainment industry, where consumers suddenly start demanding their content in more convenient forms than the traditional broadcast schedules.

It's music and movies when we want it, where we want it, in whatever form we want it -- a mantra that was heard in trade shows across the country about two years ago. Right now, the idealized form of that battle cry is turning into consumable reality, and SeaChange is one of the companies making it happen.

I've seen CAPS comments about the risky nature of this stock making it an unworthy investment at this time of credit crisis. Let me just point out that the balance sheet is debt-free, cash flow is positive, and none of the financing comes from the massive dilution seen in other high-risk, high-reward situations. In other words, I don't think credit is a concern for this operation.

Last quarter's underwhelming results scared away plenty of investors, and when the S&P 500 swings a little bit, SeaChange brings in the Brian Setzer Orchestra and Benji Schwimmer for a West Coast Swing extravaganza. The stock price has dropped 23% since last quarter's earnings announcement. I'm almost sorry to write about it right now, because that's one juicy discount in my mind, and now I can't take advantage of it.

Curses! Foiled again!

Fool contributor Anders Bylund holds no position in any of the companies discussed here quite yet. You can check out Anders' holdings if you like, and Foolish disclosure is the prognosticator of prognosticators.