Instead of slugging it out with others trying to get customers to download content, SeaChange is a pick-and-ax supplier to the VOD industry. It has been a good business, and the company has been growing year-over-year revenue since 1994.
Last night, SeaChange announced strong third-quarter results. Revenue grew 12%, and net income skyrocketed more than threefold (helped in part by a change in the tax treatment for deferred revenue). The balance sheet has good news, too. Since last year, long-term debt and obligations have fallen to zero, and cash has increased by $17 million to $104.6 million.
What disturbed investors and sent the stock down 4% today was the company's $0.10-a-share earnings projection for next quarter -- which was two cents below analysts' estimates. The company is saying that next quarter is seasonally weak. But, given that the stock is selling for 36 times current-year projected earnings, it was probably time for investors to just take profits.
Compared with some competitors, SeaChange has been doing well. Concurrent
SeaChange has a growing order backlog of international sales (which are 23% of sales). It has a promising partnership that can deliver interactive game applications from its platform. While nobody is expecting exploding sales, the company has gained the critical mass necessary to finally generate strong profit growth. Analysts expect profits to grow 28% next year.
The sea change has already occurred at SeaChange. Although each share is backed by $3.60 in cash (per fully diluted share), the stock price already reflects a rosy outlook. The ship has sailed (the stock is up 35% this year), and investors would be wise to sit shore side and watch to see whether the fourth-quarter results really are just seasonal.
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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
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