Investors in digital copy protector Macrovision (NASDAQ:MVSN) are smarting this morning after a 2% pre-earnings-announcement run-up in their stock's price turned into a 6% rout in the announcement's aftermath. Wall Street actually had two reasons to dislike Macrovision's announcement -- one good and one kind of silly.
Let's take the silly one first. Macrovision predicted that in the fourth quarter of 2004, it will likely earn "just" $0.25 to $0.27, rather than the Street's hoped-for $0.28. To which Foolish investors should reply: "So what?" After all, the company has racked up an impressive history of 20% compounded earnings growth over the past five years, and fourth-quarter expectations aside, analysts predict that Macrovision will continue to produce 20% gains for the foreseeable future. With past performance and future prospects like those, quibbling over a penny or three of missing profits in one out of the 40 quarters under consideration is, well, let's just call it "less than Foolish."
A better reason for punishing the stock can be found in the company's results this quarter. The third quarter of 2003 produced generally accepted accounting principles (GAAP) earnings of just $0.03 per diluted share -- a far cry from the year-ago quarter's $0.15. Granted, there were a lot of one-time and noncash charges that went into that earnings decline -- but it's a decline nonetheless, and there's a reason that results like these are "generally accepted" as significant.
Which is more than you can say for the results that Wall Street's analysts actually did pay attention to -- the pro forma earnings (pro forma is Latin for "in a world where Ralph Nader could be elected"). Those came in at $0.22 per share in Q3, against Street expectations of $0.19. For once, the market gave pro forma results the respect they deserved (i.e., ignoring them and dropping the stock 6% regardless).
While the company argues that its pro forma numbers are more useful to investors than its GAAP numbers, this Fool humbly begs to differ. Pro forma math varies from company to company and can vary within a single company from quarter to quarter. It bears a stigma of unreliability. If Macrovision truly wants to help investors understand its accounting, to enable us to look beyond a blip in its GAAP accomplishments and focus on its real cash profitability, here's a hint: Give us a cash-flow statement along with the earnings announcement.
Show us the cash, Macrovision. Accounting constructs aside, if you give us proof that you're still making real money, rest assured that Foolish investors will give you the benefit of the doubt when your GAAP falls flat.
Read all about Macrovision in our previous writings:
- Macrovision Sees Big Profits
- Has Macrovision No Shame?
- Macrovision's Money Game
- Macrovision Looking Good
Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.
