Cramer's Not Getting Behind DivX, 'No Way, No How'

After reporting first quarter results that were in-line with downwardly revised guidance, Divx Inc. (DIVX), a video compression software maker announced that it expects second-quarter revenue to total between $16.7 million and $18.7 million, reflecting a seasonal decline in demand for some products. The midpoint of the range is below the $18.2 million in quarterly sales analysts were expecting.

With operating expenses and expected to increase with a higher headcount, analysts beat down earnings per share estimates for 2007 and 2008 which have been reduced from $0.60 to $0.52 and from $0.85 to $0.78, respectively.

That is certainly not good news, but it is even more troubling that DivX shares have fallen an additional 15% since earnings. Perhaps it is because the bears have been in control and have added to their positions. The total short position on DivX has increased from 1.71 million shares in the beginning of the year to 2.63 million last month, up from 2.04 million in March. And there is not much of an incentive to cover with a decreasing bottom line and no upside catalyst in sight.

As a result, the stock has been under some intense pressure since April, falling 35% since it hit a high of $23.80 during the month and has not been able to rebound. The market seems to doubt the guidance the company has offered, pricing in lower earnings. And with Cramer beating up on DivX, reflective of the pessimistic market sentiment, this is not a falling knife you want to catch right now.

Here's what he said on one of his shows just recently: "I did say to sell DivX on three different occasions... One of the ugliest quarters out of the shoot I have ever seen; I am not getting behind DivX, no way, no how."

DIVX 1-yr chart: