Gemstar Takes Lumps


Gemstar-TV Guide International Inc. stock took a hit last week, after the company declined to reveal net income for its fiscal second quarter and an analyst downgraded the stock.

CIBC Oppenheimer Corp. John Corcoran cut his rating from "strong buy" to "buy" and lowered his 12-month price target on the stock from $120 to $79.

Corcoran cited slower-than-expected growth in the second quarter.

Gemstar stock, which had fallen by more than $12 per share on Nov. 14, finished the day at $44.69 per share, down $10, or 18 percent.

"Wall Street remains somewhat confused by the lack of financial and operational guidance coming from the company," Corcoran wrote in his report.

Gemstar reported pro forma revenue in the period ended Sept. 30 dipped less than one percent to $337.7 million and cash flow rose 30 percent to $99 million.

But Gemstar chairman Henry Yuen, in a conference call with analysts, declined to reveal the company's net income, stating that the company took on a large amount of goodwill in its acquisition of TV Guide.

Because the TV Guide acquisition was made via the purchase accounting method, the intangible assets that Gemstar would have to write off would "swamp the type of operating income we would be able to report," Yuen said.

For that reason, it would be more appropriate for Gemstar to be valued on its cash flow, rather than its earnings, he said.

In a filing late last Tuesday, Gemstar reported a net loss of $115.8 million for the quarter, or 30 cents per share. That compares to a profit of $16.4 million, or 8 cents per share, in the same period last year.

The bulk of that loss was due to amortization of $206.5 million in the period. In the same period in 1999, amortization expense was just $1.3 million.

Corcoran said he still believed Gemstar was in a prime position with the strength of its patent portfolio, its interactive programming guides, a sound strategy and a strong management team. But "several parts of the business are developing more slowly than we expected," Corcoran wrote. Gemstar also has not reached a long-term agreement for its IPG with a large MSO other than AT&T Corp.