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Monday, April 26, 2010

Sonic Foundry - Moment of Truth this Week; Plus "Online" Autodesk University Reaches 90K Persons = Impressive

Sonic Foundry (SOFO, $7.60) is expected to report March quarter results on Thursday afternoon. We're looking for confirmation that our Mediasite franchise thesis is correct -- that is, continued revenue growth and operating leverage that yields positive net income. Further, we hope to hear a confident reiteration of management commentary from last November signaling mid-2010 as a "turning point for the company":
  • “Furthermore, we are beginning to see signs of economic recovery, and specifically, certain signals for expanded growth in mid-2010 as they relate to the Mediasite product and service offering. Correspondingly, our recent prospecting has resulted in additions to our sales pipeline that, if consummated, would dwarf most of the previous sales made by the company to date. These opportunities have been harvested both domestically and internationally and in different vertical segments of our customer base, most of it occurring in the last few months. Based on the expected timing of these new opportunities, mid-2010 may mark a significant turning point for the company, which could substantially expand operating performance, especially given the cost reductions and operating leverage now in place."
From our perspective, nothing has changed: we anticipate that the franchise is real and growing, and can point to Sonic Foundry's recent Webinar featuring Autodesk (ADSK, $34.72):
One notable slide from the Webcast shows how many persons around the world Autodesk is reaching by Webcasting sessions (on-demand/live/hybrid) from its conference -- 90K on-demand and 20K live (virtual):

While the company uses a third party to create a customer interface for the "University", the engine is Mediasite. As video becomes more pervasive at Autodesk and other companies, we think Mediasite will be there (even acknowledging risks such as technological change and competition). This brings us back to the advice from Peter Lynch and Philip Carret: look around and seek favorable trends.

Of course, the proof is in the pudding: results need to show accelerating adoption and penetration into the mainstream marketplace. Positive earnings and an outlook for continued positive earnings would reset Market expectations for Sonic Foundry and possibly bring new investor interest (note: liquidity and small size remain institutional investment constraints).

Only one sell-side analyst appears to cover the company (we're uncertain which firm) and, per Yahoo! Finance estimates, he/she expects losses of approximately one dollar this year and next. Per our 3/3/10 Sonic Foundry post, we think the signs should be reversed and see potential for one dollar of cash earnings for the year beginning this summer.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long SOFO.
© 2009 Jeffrey Walkenhorst
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