Gigamedia (GIGM) is structured as a holding company that today runs two primary businesses, both focused on online gaming. The first business, labeled as Gaming Software & Services, is involved in the development and licensing of software and application services to allow online casino and poker applications, mainly targeted to continental Europe. This software allows the licensee to easily add transaction handling, multi-player matches, marketing, and data mining to the end application. This unit generates just over 70% of sales. The major licensee is Ultra Internet Media (UIM), which has developed Everest Poker and Everest Casino, two of the better-regarded online gambling operations out there.
The second business is Online Gaming and Services, currently contributing about 25% of sales. There are two subsidiaries that comprise this unit. FunTown is a Taiwan-focused operation that offers a wide variety of games, from casual ones like Mahjong and online versions of popular Asian table games, to licensed "massively multiplayer online role-playing games" (MMORPGs) such as Warhammer Online (licensed from Electronic Arts - EA) and Phantasy Star (licensed from Sega). FunTown has nearly 12 million registered users. The other online gaming subsidiary is T2CN, a huge (over 70 million users), China-based business whose focus is on sports games. [more]
Weekly roundup of stocks moving in and out of the Magic Formula Investing screen.
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Pain Therapeutics (PITE) is a branded pharmaceutical development concern. The company is essentially hitched to King Pharmaceuticals (KG), and even more specifically to the success or failure of a single drug - Remoxy, a form of Oxycontin designed to resist chemical and physical manipulation. Let's take a look at PTIE's business model.
The company receives revenues in three categories: collaboration, program fees, and milestones. All of these payments are coming from King in a joint-venture development program for Remoxy, as well as two other earlier stage candidates who's indications are not yet known. Collaboration revenues are reimbursements from King for R&D expenses. Program fee revenues are a pro-rated accounting of a $150 million up-front payment from King at the outset of the collaboration in 2005. They amount to about $3.6 million in revenue a quarter, and will be recorded through 2014, but do not provide ongoing free cash flow. Finally, milestone payments are one-time payments from King for reaching a critical milestone, such as submission to the FDA, which PTIE received a $20 million payment for in the middle of last year. [more]
Current Magic Formula stocks ranked by highest dividend yield, lowest price-to-sales (P/S) ratio, and lowest price-to-book (P/B) ratio. [more]
Weekly roundup of stocks moving in and out of the Magic Formula Investing screen.
QLogic (QLGC) manufactures and sells components used in computer data storage networks. The company has 3 primary divisions. Host Products (about 75% of sales) sells host bus adapters, or HBAs, which connect computers to networked storage devices like hard drives or optical media. This division also makes InfiniBand Host Channel Adapters (HCAs), which are used in "supercomputing" applications that require high data bandwidth. The second division is Network Products (~17% of sales), which manufactures Fibre Channel and InfiniBand switches and storage routers. Switches and routers connect different parts of storage networks and route data between them. The final division, Silicon Products, delivers the remaining small portion of sales and is QLogic's legacy business, providing protocol and controller components used in older network architectures.
QLogic has a number of positive factors, one of which is market growth potential. It takes only a rudimentary knowledge of Internet trends to realize the massive amounts of data storage that are required for applications such as social networking, online photo and video sharing, digital distribution of audio and video content, "cloud computing" storage of documents and applications, and so forth. These trends will only intensify going forward, and to efficiently handle storage needs, these storage-area networks (SAN) will become more and more ubiquitous, driving demand for QLogic's products. IDC forecasts a 15% annual market growth for HBAs through 2011, with the overall SAN market growing at an equally impressive 10% annually. SAN vendors are trying to push the technology to medium-size enterprises (it is currently utilized mainly by large firms). Organic revenue growth potential is in QLogic's favor, and the firm has delivered almost 17% annual revenue gains over the past 5 years. [more]
Last week, Joel Greenblatt, the founder and "godfather" of Magic Formula Investing (MFI), gave an interview to value investing supersite GuruFocus.com. In the interview, he answered a number of questions relating to Magic Formula Investing, his new FormulaTrading venture (which MagicDiligence reviewed here), and on the market and his investing principles in general. I encourage all MagicDiligence readers to take a look at the interview, as it is an enlightening read. Some common themes ran through his answers, and I wanted to comment on a couple of them in this article. Joel's comments to GF are italicized, with my comments below. All comments belong to GuruFocus, and are reprinted with permission.
Theme #1: Investing Should be Simple [more]
Jackson-Hewitt Tax Service (JTX) is the second largest "brick-and-mortar" tax preparation firm, trailing only H&R Block (HRB) in returns filed. The company operates primarily on a franchising model, where franchisees open locations and pay royalty and advertising fees back to the parent - although recently the company has moved towards more company-owned stores, as a large franchisee came under DOJ investigation for tax fraud in 2007, hurting the brand name. Historically, Jackson-Hewitt has focused on lower income filers, which are more likely to use physical locations instead of online software, and also are more likely to get a refund anticipation loan (RAL), which come with huge interest rates if they are not paid off quickly.
Not so long ago, Jackson-Hewitt looked like an attractively priced stock in an good industry. Tax preparation has a lot of desirable qualities. For one, it is not very capital intensive to sell franchises and collect royalties, allowing the company to grow revenues without requiring much expenditures, which in turn leaves more cash available for shareholders. Also, it is one of those "inevitable" businesses that Warren Buffett likes to talk about. Virtually every adult in the U.S. has to file a tax return, so there is almost no chance the market will just disappear or decline significantly from year to year. The stock's (then apparently) low price in early 2008 looked to be due to a one-time occurrence with a misbehaving franchisee, something that would hurt the brand for a year or so but then fade away. Unfortunately, things have snowballed downhill from there. [more]
Back in March, the new official Magic Formula Investing site was launched. In MagicDiligence's review of the changes, I mentioned that there was little doubt as to the motivation - to push Greenblatt's new Formula Trading venture to capitalize on the popularity of MFI. Formula Trading recently launched as an active service, so let's take a look at what it offers and what the terms are for interested investors. Is Formula Trading a good deal for current and future MFI investors?
There are two available plans at Formula Trading, labeled the Self-Managed and Professionally-Managed plans. The Self-Managed plan is pretty simple. It provides an MFI investor with essentially the same screening tool available at the official site, which the user can use to search for MFI stocks to fill his or her next purchase tranche. You run the screen, check off the stocks you want to buy, indicate how much money you want to invest, press a button, and you are done. The system also alerts you when the time approaches to sell a previous set of stocks. [more]