|
|
|
This Feature |
|
Related Items |
|
Friday, February
20, 1998
Sonic Solutions
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNIC)") else Response.Write("(Nasdaq: SNIC)") end if %>
Phone: 415-893-8000
Website: http://www.sonic.com
Price (2/19/98): $3 9/16
HOW DID IT FIND TROUBLE?
Like the protagonist in The English Patient, it is time to reclaim
a former love and give it a proper burial. The torrid love affair between
the Fool Port and Sonic Solutions was passionate but destined to fail. Yet,
like any good romantic tragedy, we need to flashback to merrier times, when
times seemed less bleak.
Alexandria, Virginia, 1994. As the holidays and the cold consume the attention
of the populace, the Fool Port announced it was buying a stake in Sonic
Solutions. The beauty was a temptress, with wavy strands of dreams to
revolutionize the world of audio. The public had long since ditched the old
analog technology in a move to digital audio -- Sonic Solutions' very strength.
With a company on the cutting edge of technology, rubbing elbows with the
Hollywood elite, where was the downside?
The bridge from ga-ga to go-go never materialized. The Fool Port bought in
at a cost basis of $14.48 a share and after a few disappointing quarters,
cashed
out a year later at $6 3/8 a share. It was a memorable yet unfortunate
relationship. Sonic Solutions was left for dead, but the flame was not
extinguished immediately.
More than a year later there were flickers of life when investors hoped the
company's role in DVD (digital versatile disk) technology would bring back
the good times. However, despite success with its DVD audio mastering and
authoring technology, the blaze above $10 a share proved short-lived and
the flame was eventually snuffed out.
BUSINESS DESCRIPTION
Sonic Solutions helped The English Patient to an Academy Award last
year. The critically acclaimed epic, which won an Oscar for Best Sound, was
mastered by the company's digital audio workstations.
The California company has provided many prolific movie and music recording
studios with the tools to process and master digital sound onto compact disc,
film, radio and television broadcasts, and now DVD.
FINANCIAL FACTS
Income Statement
12-month sales: $19.6 million
12-month income: ($4.9 million)
12-month EPS: ($0.64)
Profit Margin: N/A
Market Cap: $22.8 million (on 7.6 million shares)
Balance Sheet
Cash: $2.2 million
Current Assets: $7.5 million
Current Liabilities: $8.4 million
Long-term Debt: $0.2 million
Ratios
Price-to-earnings: N/A
Price-to-sales: 1.2
HOW COULD YOU HAVE SEEN IT COMING?
How did Sonic's boom become a sonic bust?
While the perception of the company's prospects has rocked the share price
back and forth despite the perpetual red ink over the last two years, there
was one quick flash of fiscal optimism.
Last June's quarter was unexpectedly good. Two thumbs up! While Sonic Solutions
still reported a loss, traditionally flat revenues surged. Sales shot up
141% for what was, and continues to be, the company's finest top-line showing.
With film studios gearing up for an expanded DVD rollout, the company's installed
base grew. It was the summer of love. Soon after, the shares began to rise
back into double-digits.
The fact that the company still lost money for the quarter should have given
shareholders pause. If the gross margins generated were not enough to offset
the corporate overhead in the ideal situation, when would the company turn
a profit? When sales regained their flattish comparisons with the year before,
and sequentially weaker from the strong June showing, like a sound wave at
its decibel peak, DVD or not DVD, it was all downhill from there.
WHERE TO FROM HERE?
Let's not assume that this once handsome patient, now disfigured and lethargic,
has lost its pulse. The prognosis is not good but not necessarily fatal either.
Most of the damage has already been done to Sonic Solutions. Granted, an
investor must tread carefully, minding the minefields. The once sturdy balance
sheet now lies in ruins and, despite the depressed share price, equity offerings
seem to be the only way to sustain solvency. Even the analysts don't see
an end to the crimson until beyond the next fiscal year.
Understanding Sonic Solutions as a quality niche player, rather than an aural
juggernaut, goes a long way towards setting realistic expectations. With
the price tag of DVD players dropping, the slow start last year with early
adopters should win over more mainstream users in the years ahead.
Turning up the volume may not necessarily help Sonic Solutions. Whether a
million copies of Batman & Robin are sold, or just a few thousand,
the software is a one-time sale to the studio. However, the medium's growing
popularity will certainly help the company in terms of upgrade pricing and
corporate prominence. Visibility, even for an audio company, is important.
For now, the former talk of the town has grown to a whisper. As I write this,
in the Sonic Solutions AOL
message
board there has been just one post over the last three months. Can the
company turn up the volume? Can the company rewrite a happy ending -- one
in which Sonic Solutions emerges from the cave, after years of cold darkness,
to win hearts once again? Maybe so, but don't expect the Fool Port to be
there waiting with open arms.
-Rick Aristotle Munarriz
([email protected])
Check out the Daily Trouble Message Board!
|