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Thursday, July 29, 2010

The Value of the Mediasite Franchise? First, Many Firms Could Clearly Benefit; Second, Ask Massey University and Others Around Globe

Per our mention last weekend, our follow-up post on PetMed Express (PETS) is forthcoming. However, we decided to first write on our micro-cap, late-stage-venture-capital-like holding, Sonic Foundry (SOFO, $7.68), prior to results next Tuesday.

Nonetheless, until just the other day, we honestly weren't sure what to write. Why? Well, we feel like we've pretty much covered the bases on this company over the past year, ranging from:
  • (note: all per share figures in posts prior to 11/03/09 are pre-1:10 reverse split)
So, we've shared our analysis in great detail (including at least a few other posts not listed above). Why have we supported such a small company when, to-date, our investment has represented a sizable opportunity cost and technology companies often deliver poor total returns relative to "old economy" type companies (e.g. see research included in Jeremy Siegel's The Future for Investors)? A handful of reasons, including:
  1. We support any company we believe in, especially when we're an owner and see a meaningful discount to our estimate of intrinsic value with mitigated risk factors.
  2. Mediasite addresses a clearly defined market need and makes life easier (better) for a large, growing addressable market with favorable long-term trends (e.g. video everywhere).
  3. Customers love the product and many keep buying more.
  4. Market leadership position with scale and awareness.
  5. Positive internal morale - our impression is that employees are united around Sonic Foundry's vision: "We live by two main tenets: first, don’t change the way presenters present and second, get this recorded knowledge to the audience as quickly and as easily as possible."
  6. Per prior posts, numerous data points imply that the Mediasite franchise is real and expanding.
OKAY, but what to write this time? We could share recent Mediasite catalogs and presentations:
Or, other news from Sonic Foundry and various industry sources. BUT, no need to rehash what's already out there....

Or, as relayed in our Who on Earth Needs Mediasite? post (January), we could again point out that countless Webcasting companies and even Nasdaq's (NDAQ) Shareholder.com unit need Mediasite, OR that simply more companies need Mediasite to broadcast/capture corporate events. Today's Microsoft (MSFT) Analyst Meeting was Webcast live by Shareholder.com -- video only, no synchronized slides (slides available via separate download):


The Shareholder.com approach here is to shift the active video box (other "boxes" are only still images) between the presenter and slide/other content -- below, note the image that replaced the speaker in the upper left quadrant box (another note: we manually shifted around the speaker bios in the lower right quadrant - these are static no matter who is presenting):

Why do Shareholder.com and other Webcast platforms NOT include automatically synchronized slide/other content like Mediasite? Because the task is not as easy as Mediaste makes it look, which is why Sonic Foundry holds two issued patents with another four pending. Recall that the core Mediasite patent covers the following:
  • "The Mediasite patent covers a production method and system involving the capture, indexing and synchronization of RGB-based content. The captured content can then be sent over a network, such as the Internet, and viewed by others whenever they want. The patented technology allows a person to give a presentation in an office meeting, a classroom or at a conference, while the technology synchronizes what the presenter says with visual aids, and instantly streams both over the Internet."
Given the obvious shortcoming of alternative solutions, another question naturally follows: why would ANY customer NOT use Mediasite for Webcasting?

The news this week of Clifford Chance's selection of Mediasite to connect 29 offices in 20 countries also hits on key reasons for adoption. Clifford Chance, a law firm with 3,200 "legal advisors," commented in the press release:
  • "During our selection process, which was carried out with key business sponsors, procurement and technology teams, we discovered that Mediasite definitely offered the cleanest presentation and online delivery, and best met all our requirements."
  • "Our quarterly employee address is a good example. In the old days, if we had to edit the tape of the videoconference, it would take a minimum of five days to turn around the content. Now we publish it 15 to 20 minutes after the event. Even better, we can do it in real time as well, reaching out to all our offices globally."
  • "With Mediasite, we were able to create a workflow so that IT staff doesn't need to get involved in the publishing of content. We provide the Mediasite webcasting platform and presenters do what they want, when they want. We give them some guidelines, templates and other professional support, but it's their content."
  • "One of the key benefits we wanted to achieve was to centralize all of our video content which is created around the world, and make it available to our global staff and external audience, on-demand or in real-time. That's actually quite a good success story for Mediasite."
BUT, we've digressed.... SO, what did we see the other day that provided especially desirable fodder? A Re-Tweet by Mediasite of a Tweet from Matt Alexander:
  • mediasite Congrats! RT @mattalexandernz: Wahoo! Just topped 50,000 views of our Mediasite content. 20,000 so far for 2010.
50 thousand views? AND, 20 thousand year-to-date in 2010? Sounds pretty solid. Now, we're on to something. Let's dig deeper.

Who is Matt Alexander? He works Information Technology at Massey University in New Zealand. What is Massey University? From Wikipedia, we have:
  • Massey University (Māori: Te Kunenga ki Pūrehuroa) is one of New Zealand's largest universities with approximately 36,000 students. The University has campuses in Palmerston North (sites at Turitea and Hokowhitu), Wellington (in the suburb of Mount Cook) and Auckland (at Albany). In addition, Massey offers most of its degrees extramurally within New Zealand and internationally. It has the nation's largest business college. Research is undertaken on all three campuses.
36,000 students with several campuses = large university.

Let's search for Mediasite + Massey - we find a page dedicated to the solution at the school with a summary schematic of how Mediasite works:
Ah, we then further see this information:
  • Massey University has won the Excellence in Education Award for outstanding achievement in enhancing learning and outreach through rich media at the Mediasite user conference in the United States. Click here to view the winning award submission or the Massey News item.
From the school's press release:
  • "Mediasite technology has been used by Massey for high profile initiatives across the University and collaborative projects with other universities, such as Manu Ao, the Massey-led inter-university Maori academy for academic and professional advancement, and for a range of other valuable projects, such as forming links with other organisations in agriculture, education and across industry sectors."
Finally, we watch Massey's video submission (click here or above link) to hear first-hand about the university's use of Mediasite and future roadmap.

The best insights always come from customers. In this case, readily available information from multiple sources implies that Massey is not alone in lauding Mediasite and making the solution a central part of everyday life for students, professors, researchers, and numerous others. Importantly, this trend is global and not limited to any one country or region.

Thus, we continue to believe the value of the Mediasite franchise remains significantly under-appreciated by the Market. Per our prior posts, estimated replacement cost and private market value suggest fair values at least several multiples of Sonic Foundry's current valuation. Ongoing M&A activity in adjacent spaces -- including BlackBoard's recent acquisition of collaboration companies Elluminate and Wimba at approximately four times 2011E revenue -- provide current reference points for a mid $20s private market valuation of Sonic Foundry.

That said, the value for any company in the eye of the beholder (e.g. fundamental analyst) is often quite different from that awarded by the Market. Right now, with an enterprise value of approximately $33 million (assuming fully diluted shares of 4.5 million and net cash of $1.7 million), the Market places little value on the company.

How might this change? Accelerating revenue growth and positive earnings that lends visibility into a third, critical valuation method: earnings power. Even with school budget risks, we're optimistic that Sonic Foundry's June quarter report next Tuesday will prove a positive catalyst, moving us past the deja vu of last quarter. We shall soon see if seemingly favorable end-market trends prevail and support our franchise thesis.

Addendum - more from Twitter, in this case, the University of Florida and North Carolina State University:
  • mediasite Wow - kudos! RT @robgrau: We hit 200,000 #Mediasite views for 2010 today! That matches last year's total w/ 5 months to go!
We suspect other schools are seeing similar trends.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long SOFO.

© 2010 Jeffrey Walkenhorst
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