Shareholders of DVD copy protector Macrovision (NASDAQ:MVSN) suffered a double whammy yesterday, as the market first bid the stock down by 3% while the sun shone and the snow fell, then by a further 3% as the sun set (and the snow continued to fall... hey, enough with the snow already! It's like March, y'know?).
The day's first slide apparently came with the territory, as pretty much everybody else on every index bled red for the day. It was the after-hours selling that puzzled. If you look at the surface numbers that Macrovision reported after the closing bell, the company did pretty well on all the major fronts -- as usual.
For fiscal 2004, profits rose a healthy 36% over the company's 2003 results. Broken down per diluted share, profits still rose 35% despite a couple percent worth of stock dilution (nothing too excessive, so no worries there). Why, the company even beat estimates, which analysts had pegged at $52 million in fourth-quarter revenues and $0.26 per diluted share in profits. The actual results for the quarter were $59.6 million in revenues and $0.31 per diluted share in profits.
To this Fool's mind, there are once again two reasons for Macrovision getting walloped in the after-hours market. And just as three months ago, one of the reasons is good and one is silly.
Good reason first: margins. Operating margins slid from last year's 35.5% to 29.9% in 2004. The reason for the decline in margins is that although revenues rose 42% for the year, the cost of those revenues doubled (hurting gross margins first of all). On top of that, Macrovision's expenditures on R&D and marketing grew disproportionately at 66% and 56%, respectively. (General and administrative expenses, on the other hand, grew more slowly at just 31%.)
But the real reason I suspect the market whacked Macrovision yesterday had more to do with it underpromising on next quarter's earnings. Wall Street wanted to hear the company say it would earn $0.23, but all Macrovision was willing to promise was profits of $0.17 to $0.18 -- and "pro forma" (Latin for "funny money") profits to boot. The fact that Macrovision agreed with Wall Street's expectations for the full year 2005, by promising $1.03-$1.06 (again, pro forma) couldn't overcome the Street's short-term focus.
And yes, I think that's silly. If you're investing for the long haul, and your company delivers over the long haul, it makes little difference whether it gets there in a beautiful line of steadily increasing profits, or whether its earnings are a little lumpy from quarter to quarter.
Read all about Macrovision in our previous writings:
- Macrovision Takes a Hit
- Macrovision Sees Big Profits
- Has Macrovision No Shame?
- Macrovision's Money Game
- Macrovision Looking Good
Fool contributor Rich Smith holds no position, short or long, in Macrovision.
