There has been a lot of hype over the press release from Hauppauge Digital (HAUP) that they now offer software to send a TV signal from a PC to Apple products like the iPhone. It is certainly easy to understand why a technology company would want some of the shine from Apple (AAPL) put on their products. The press release, by any measurement, was a success initially as the price of the stock went from about $1 a share on Thursday, before the announcement, to over $4 on Friday.
Looking more closely at HAUP, we see some warning signs of a company that may lower its attractiveness. HAUP received a notice of non-compliance with NASDAQ and the listing requirements. The notice to HAUP from the SEC filing shows that it was received in November of 2009, and that HAUP had 180 days to get the price of the stock above $1 per share. Failing to do so may mean delisting of the stock and would send the stock to the OTC market with other penny stocks.
The date ending the "180 days to comply' happens to be this coming Monday (5/17/10). This does give the impression that perhaps the timing of the press release on Thursday was more about pumping up the stock price quickly to bring it over $1 on Monday. Especially with the timing of the release, about 30 minutes before the close, leaving little time for full reflection of the pros and cons.
Looking at the profit and loss statements, along with the balance sheet, we see a company whose management has been unable to turn a profit for the last three years, likely a primary reason why the stock was trading under a dollar and did not rise even though the major averages gained overall.
To make matters worse, HAUP released to the SEC its latest results and they do not look good. After losing about half their sales from three years ago, they are still unable to turn a profit, and, once again, for the last three months and the last six months, management has been unable to generate a positive return to the investor. According to the SEC filing, the last six months has traditionally been the better half of yearly results; HAUP sales in North America are shrinking, Europe makes up over half the sales and had it not been for the strong euro, the losses in the latest period would have been worse. Now with the euro being weaker against the dollar, it would appear that top line and bottom line results for at least the next period will face some headwind.
If the stock is able to stay above a dollar, shareholders face dilution of shares as the company has issued options worth about 30% of the float, starting at just above a dollar per share and working their way up to around $8 per share. The release of the company's actual performance on Friday was not met with as great of enthusiasm as the press release. After the close and the release of earnings, the stock fell and went near the low of the day in after- hours trading.
Can the new software that allows TV video to be watched on mobile devices turn the company profitable? The software does not create an ability to do something that cannot already be done, and the company is competing against free software and, maybe more importantly, "Slingbox", which is a stand-alone product that does not require opening up a computer and putting a card in to reach the same objective. There are other similar products, but it appears that the leader in this space is Slingbox.
To see a difference in leadership, take a look at Slingbox's website compared to HAUP's, and it becomes clear, at least on the websites, who is leading in marketing ability. As a result, I would not expect to see much of a top or bottom line change from the software, which would suggest that the next quarter's earnings release will still not show a positive return for the investor.
If this company had any real value above the stock price, I would think that it would have already been bought out when the stock was trading near a dollar per share. At over $3, it appears to be a company that is losing money at triple the price.
Disclosure: Author holds a short position in HAUP