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Wednesday, October 7, 2009

Can't Help But Mention Mediasite, Again -- Tandberg and More...

Following up on our M&A post yesterday and, specifically, the Cisco (CSCO, $23.61)/Tandberg deal, we couldn't help but mention that Sonic Foundry's (SOFO, $0.67) Mediasite rich media solution easily integrates with video conferencing gear from both Tandberg and Polycom (PLCM, $27.48). Although Mediasite's core application is "one-to-many" presentations (e.g. lecture capture, town hall meetings, conferences) and not point-to-point video communications, we are aware of some customers using Mediasite to capture video conferencing conversations. For more information on this topic, please see this presentation from Sonic's Unleash 2009 Conference: "Integrating Mediasite with Videoconferencing: A Scenario-based Presentation from Basic to Wild" by Helder Conde, Technical Director, Atitude Digital Media. The niche player's ability to readily inter-operate with widespread video hardware/systems is a clear positive.

For those interested, Helder Conde was also the lead presenter at last week's Mediasite User Group meeting - link here. One item he highlighted was a large Mediasite Webcast his firm handled for Sanofi-Aventis (SNY, $37.13). Originally, Sanofi-Aventis was going to have an on-site meeting, but opted for a Webcast because of the H1N1 virus. Thus, Mediasite was used for 15 presentations and 27 hours of content that was Webcasted live "with intense audience participation" to around 800 participants. We expect to see more events like this.

The User Group meeting also included a presentation by Sonic Foundry where the company previewed the Mediasite v5.2 release, which includes several additional upgrades to further improve the solution (e.g. "remote recorder control center" in online "management portal"). Notably, the company expects the release upgrade next week. Sonic Foundry continues to keep the virtuous feedback/upgrade cycle alive with the company's expanding, installed customer base.

The User Group meeting, as well as Sonic's "5.1 in 15 Webinar Series" and a recent Webinar titled "Future Proof Capture: Best Practices for Planning Your Server and Storage Strategy" provide excellent insight into the Mediasite solution and deployment considerations for large-scale installations. Network integration/design become evermore critical as organizations have 20, 30, 40+ recorder units capturing hundreds or thousands of hours each month.

In other news, TU Delft's Leon Huijbers was featured in a brief interview by DIVERSE2009 Weblectures - link here. We believe TU Delft is one of Sonic's largest European customers. After describing the popularity and success of TU Delft's program, one of his key points is that "no institution that should ignore these kinds of developments". We concur.

Finally, Sonic's largest customer to-date, The King Abdullah University of Science and Technology, opened for classes in September - BBC article here (no mention of Mediasite, but press for school).

Although shares of Sonic Foundry are speculative and somewhat akin to venture capital, at approximately 1.3 times trailing revenue, we continue to believe that the private market value for the company is materially higher than current trading levels given the growing Mediasite franchise, annual top-line growth of 20%+ (expected for F09 - end September), and GAAP break-even operations.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long SOFO.

© 2009 Jeffrey Walkenhorst
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  1. right product, right time, wrong management

  2. Hi Anonymous - it's true that management made some missteps in past, pulling the cart before the horse and hiring too many enterprise sales reps that didn't deliver the goods two years ago. However, the business model is right-sized and poised to generate excess cash flow if 20% growth continues next year, which seems reasonable. I don't think we've missed the window of opportunity and believe the franchise is secure given entrenched, happy customers. Sure, we'd love to see even higher growth with faster adoption, but this is an emerging technology and we're in a recession (school budgets hurting everywhere). The market leading quality of the product, along with diehard customer loyalty, should keep fundamentals moving in the right direction and lead to favorable shareholder returns. I don't see Mediasite as Beta in the Beta vs VHS battle of days long past. That said, like many shareholders, I've been patient for quite awhile and will be disappointed if we see growth in billings/deferred revenue decelerate and no recognition by Mr. Market. Means to accelerate growth [beyond 20% Y/Y to 30-40%] such as new partnerships and/or distribution would be welcome news.



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