Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
 |
The
Digital Entertainment Revolution is Here |
 |
The digital entertainment revolution
is upon us. Entertainment is no longer turning on the TV or heading to
the local movie theater. Between MP3 players, PDA's, cell phones with games
and movies, portable DVD players, digital satellite music, and a whole
host of other new mediums, digital entertainment is everywhere.
You are looking at a chart of Netflix
(NASDAQ: NFLX), a new wave digital entertainment company. The company
has revolutionized the DVD rental market. You pay a monthly fee of $21.50,
and all the DVD movies you want to rent simply appear in your mail box.
You watch them, slip them in a pre-paid envelope, and order another at
their web site which then comes in your mailbox. You can have three out
at a time, and there are no late fees. This model could not have worked
with VHS movies. The delivery costs would have been too high. NetFlix
is blowing Blockbuster out of the water. The company debuted for
trading in May of 2002. The IPO was priced at $15 per share, yielding a
mere 433% return over the past 18 months based on Friday's closing
price.
I could have put up a chart of Sirius
Satellite Radio (NASDAQ: SIRI), another digital content delivery company.
Many thought Sirius would fail. The stock entered 2003 at $.50
per share, and last year made a high of $4.00. That's an eight bagger
if you had the courage to invest in early 2003.
The digital entertainment revolution
is creating some both serious opportunities and problems for the entertainment
industry. The problems relate to the format. Digital music and video are
comprised of simple digital files which can be transferred to any memory
medium without degradation of sound or image. This wasn't true in the good
old days when we listened to cassettes and watched movie rentals on VHS.
Today's digital entertainment can be pirated, and the entertainment industry
hates it.
On Friday, just after the market
closed, an overlooked company with some great new technology and strong
profits announced they have perfected a new solution. For your consideration:
 |
Trading Alert-
NuTech Digital (OTC BB: NTDL) |
|
NuTech Digital is an originator,
licensee and distributor of a broad range of DVD content. They sell DVD
titles which they acquire and sell through a variety of distribution networks,
and they are profitable with strong cash flow.
The company's titles can be found
in places like Tower Records, Best Buy, Fry's, The Warehouse, and Wallgreens.
They own DVD titles in nearly all kinds of entertainment from an animated
version of Alice in Wonderland to horror titles like Don't Go
in the House. About 6% of their revenues come from adult entertainment.
Through the first nine months of
2003, NuTech achieved $.525 million in earnings on $3.1 million in sales.
This equates to $.05 per share in earnings through the first nine months
of 2003. If the 4th quarter comes in at the same pace, one can assume the
company will achieve about $.07 per share in earnings in 2003 on more than
$4 million in sales.
The stock closed at $.73
on
Friday, a level at which investors are only paying 11 times 2003 earnings.
This is an unheard of low multiple in the microcap arena. For those of
you who like PE ratios (which I don't), you can own this stock at a PE
of 11, depending on where the stock trades on Monday.
The trailing financials address one
side of the equation- the downside risk. All microcaps should be viewed
as risky. However, one could argue there is very little risk in paying
11 times trailing earnings for nearly any growth stock. They are making
money, so they will be around for quite some time. Now, for the good stuff:
the
upside potential:
|
NuTech
Digital Announces Introduction of Revolutionary New DVD Delivery Technology |
|
NuTech Digital is like a duck
on a pond. On the surface the duck is serenely cruising along making profits.
Beneath the surface this duck is paddling furiously, working on a new and
revolutionary technology for delivering DVD movies to your computer over
the internet. They let the cat out of the bag on Friday. Here's a quote
directly from Friday's post close press release:
NuTech Digital "announced today
the launch of its Digital Rights Management (DRM) technology for film and
music delivery. The revolutionary technology provides a full spectrum of
entertainment content in High Definition- and DVD-quality video and audio
over the Internet with secure copyright protection. With this next generation
technology, NuTech has the ability to securely publish media on peer-to-peer
networks such as Napster, Kazaa, newsgroups and chat rooms."
NuTech Digital has developed
a new solution for downloading movie rentals over the internet, which,
in my opinion, works better than any solution currently available. It's
a bit like movies on demand for your computer. According to the company,
this solution is completely piracy proof, by far the easiest to use, and
delivers a movie as if you had put a DVD in your disk drive.
I tested their claim on Friday. I
had never downloaded a movie off the web and watched it on my computer,
so it was new to me. The only two competing web sites I could find were
www.movielink.com
and www.boxofficedownloads.com.
At Movielink I had a fairly
pleasant experience. I paid $2.99 for a 24 hour rental of The
Age of Innocence. After going through the normal lengthy
registration process, the system automatically upgraded my RealPlayer
to the most current version, and the movie took a few minutes to begin
playing. The delivery was fairly smooth, but only inhabited about 33% of
my computer screen. When I blew it up to full screen, the image quality
worsened considerably.
Boxofficedownloads.com was
a different story. This site appears to me to be a complete rip-off, and
I recommend you avoid it. After paying $21.95 for a one month unlimited
subscription, I realized the site is merely a front for file sharing, which
could be illegal. It wanted me to download a bunch of highly invasive software
and go out and find the files on suggested sites which all seemed to be
shut down. Avoid this site. It cost me $21.95 to learn this lesson.
The management at NuTech Digital
provided me with a password to sample their technology. It was far superior
to Movielink. There was no download time, and the movie played flawlessly
on my Windows Media Player. The movie completely covered my computer monitor,
and the image and sound were both excellent. It immediately played as if
I had put a DVD in my disc drive.
The direction NuTech can go
with this technology is limitless. It's a serious weapon in the entertainment
industry's battle to prevent piracy and benefit from the rental of its
properties. NuTech can use this technology to deliver its own content,
or license the technology to movie studios looking for ways to enhance
their revenue streams.
I have asked the company to allow
the members of the OTC Journal a temporary password to download
and view a movie for free. Management tells me that within the next month
the company will deliver upon the request. OTC Journal members will
have the opportunity within a certain window of time. You will be blown
away.
The revelation of the introduction
of this new technology opens many new doors for NuTech. I expect
there will be developments to report on this company in the near future.
|
Conclusion |
|
NuTech Digital has two of
the single most important components you should seek in a microcap investment.
First- minimized downside risk. The company made $.05 per share
in the first three quarters of 2003, and expects to finish the year solidly
in the black in both the cash flow and profit arenas. In the $.70 to the
$.80 range, it seems there is limited downside risk.
The answer to the upside potential
part of the equation was answered Friday with the announcement of their
new technology solution to help the entertainment industry manage some
of the challenges associated with the delivery of digital content. This
technology will help prevent piracy and collect fees from the online rental
of its properties.
There are approximately 12 million
shares issued and outstanding, so at $.75 the market is valuing NuTech
at about $9 million. If the right partner, deal, or content comes
along, the market could place a value of $25 million on this technology
as a starting point. This minimal market valuation gives us an upside target
of $2 in the short term (one to three months). I am banking on the
company getting some recognition for this new technology in order to achieve
this target.
The technical picture is a tough
call. There are two striking features on the chart. First, the stock has
recently attempted a retracement. It turned back up after making a brief
effort at a 33% retracement, and wouldn't trade down into the middle of
the range.
Secondly, this stock has now tried
to break above the $.80 level five times since making its first try last
August. Technicians know persistence breaks down resistance. Monday, NuTech
will no doubt make another attempt to break through $.80, and this time
it will probably succeed. Friday afternoon's announcement places this company
in a whole new category; one that draws considerably higher multiples than
their core business. Once new highs are made, there is no telling where
it could go.
Here are some rough guidelines for
this Trading Alert, but be aware this one could go anywhere:
-
Buy up to $1 (only 14 times 2003
estimated earnings)- If the stock gaps open it might pull back. Use a limit
order wherever you are comfortable. If you buy it a little high and the
market pulls back, don't worry. Give it a few weeks.
-
Stop Loss- Another tough call.
Use your risk tolerance as a guideline. If you are prepared to risk 30%,
set your stop loss 30% below your entry level. The recent low was about
$.55, so if it trades below that level, it will probably go lower.
-
Target Price- Another tough call
(did I write that already?). It will be tough to gauge where this stock
could trade until it trades at new highs we get some feel for the supply
side of the equation. The stock only trades an average of 10,000 to 20,000
shares per day. It traded 107,000 shares on Friday, and was up 5.7%, indicating
someone had an inkling of what was happening. I'm forecasting $2
over the next 30 to 90 days, but I may adjust the target once there
is some higher volume trading history. Increased volume could also bring
out some closet sellers who have been waiting for liquidity. We will have
to see.
Blockbuster revolutionized home
entertainment in the 80's and 90's. NetFlix is revolutionizing home
entertainment right now. Could NuTech Digital be a part of the next
wave? Video on demand is coming in many forms, and NuTech offers
the best internet solution I could find. Considering the already profitable
history of the company, it seems like a great speculation.
As always, a limit order is strongly
suggested. No doubt members will email me with ideas in alternative technologies
that I am not aware of at this time. I will be interested in the feedback.
Here is the complete text of the
news release which came out after the close on Friday for your review:
| Press Release Source: NuTech Digital,
Inc.
NuTech Digital Launches Digital
Rights Management Technology
Friday January 23, 4:00 pm ET
Revolutionary Technology Provides
DVD, On Demand, High Quality Content via Internet Utilizing Microsoft's
Windows Media 9 Platform
LOS ANGELES--(BUSINESS WIRE)--Jan.
23, 2004-- NuTech Digital, Inc. (OTCBB:NTDL - News), an emerging growth
originator, licensee and distributor of DVD home entertainment content,
announced today the launch of its Digital Rights Management (DRM) technology
for film and music delivery. The revolutionary technology provides a full
spectrum of entertainment content in High Definition- and DVD-quality video
and audio over the Internet with secure copyright protection. With this
next-generation technology, NuTech has the ability to securely publish
media on peer-to-peer networks such as Napster, Kazaa, newsgroups and chat
rooms.
Currently, once consumers have downloaded
the title from the Internet, they are redirected back to NuTech's web site,
where they register and choose among different options, such as a 1-, 3-
or 5-day rental or a purchase of the title. Once consumers register on
www.nutechdvd.com, they can purchase new titles or renew the rental period
without having to re-register. The Company's DRM technology prevents copying
of the title.
The Company anticipates that, later
this year, it will have the ability to deliver protected titles on DVD.
"It is news to no one that the entertainment
industry is in major transformation as it seeks viable technology to deliver
high resolution content on a secured basis over the Internet," stated Lee
Kasper, NuTech's chairman, president and chief executive officer. "NuTech's
technology will allow consumers to access NuTech's website where they can
choose multiple purchasing options for movie or music delivery."
"We believe that our Digital Rights
Management technology provides the ideal way to implement secure downloads,
rent from a pre-delivered DVD, utilize Internet subscription models, and
much more," stated Joe Giarmo, NuTech's vice president. "We believe that
this technology will also substantially reduce pirating by implementing
secure content activation. Content is electronically packaged and issued
an encrypted license."
Mr. Kasper noted further, "In addition
to providing content on the web, there is the inherent need to search for
unlicensed pirated versions. We believe this is the practice engaged in
by all major studios releasing movie and music content into cyberspace.
Our software searches the Internet for illegally pirated and distributed
movies and music. Once the product is identified, it can be tracked to
the location of the violator. We believe that this feature will help deter
the estimated $3.5 billion in content piracy, which has plagued the movie
and music industries. When publishers feel that their content is secure,
we believe that they will adopt this distribution method as a way of releasing
their material."
Mr. Kasper concluded, "All our releases
will be offered in both DVD and DRM formats. We anticipate an equal amount
of sales and rentals as this technology becomes assimilated in the market.
DVD retail sales grew to $11.6 billion in calendar 2003, an increase of
33% over last year. Consumers also spent $4.5 billion renting DVDs, up
55% from 2002. With instant access to our movies and music available on
a 24-hour basis, this will add a completely new distribution method with
little or no additional cost."
NuTech Digital has developed multiple
business models for this application, both for licensed and shared licensed
material. Full product management, including current total licenses issued
for a given title or the complete library can be viewed in real time securely
from any location.
Nutech Digital is converting its
current library and, through its existing relationships in the movie and
music industries, is actively seeking content for Internet rights for use
with its technology. The Company also intends to pursue relationships with
film and music rental companies to create a consumer account base.
Cautionary Statement
This press release contains forward-looking
statements that involve risks, uncertainties and assumptions that if they
never materialize or prove incorrect, could cause NuTech Digital, Inc.'s
results to differ materially from those expressed or implied by such forward-looking
statements. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements, including any
projections of earnings, revenue, or other financial items, any statements
of the plans, strategies, and objectives of management for future operations,
any statements concerning proposed new products, services or developments,
any statements regarding future economic conditions or performance, statements
of belief and any statements of assumptions underlying any of the foregoing.
These statements are based on expectations as of the date of this press
release. Actual results may differ materially from those projected because
of a number of risks and uncertainties, including those detailed from time
to time in NuTech Digital, Inc.'s reports filed with the Securities and
Exchange Commission.
--------------------------------------------------------------------------------
Contact:
NuTech
Digital, Inc.
Joe Giarmo,
818-994-3831, ext. 18
joe@nutechdvd.com
or
Investor
Relations:
Trilogy
Capital Partners, Inc.
Racquel
Rivera, 800-330-6540
racquel@trilogy-capital.com
--------------------------------------------------------------------------------
Source: NuTech Digital, Inc. |
Charts Provided Courtesy
Of TradePortal.com |
