Chyron Corporation: The Future of Online Graphics

Yesterday, Chyron (CGS) announced results that give a clear indication of the growth potential that exists in graphics applications and messaging. Year over year quarterly revenue growth for the 4th quarter was 46%, an increase over the 37% growth from the 3rd quarter. Revenues grew 41% in the last half of 2007 over the same period of 2006.

Possibly the first fund to recognize the potential of Chyron at the earliest stage was Elmwood Capital, managed by Rick Serafini.

"We initially invested in Chyron in the $0.30 range (pre-reverse split) a couple of years ago. At that point in time it was an undervalued turnaround story. Management has successfully executed on the turnaround and now the story has turned into a high growth opportunity. We believe the online model is a natural evolution for this company and that the management can be successful in executing on this next stage in Chyron's unfolding story. This is an undiscovered little gem that we believe can reach $10 this year,” said Rick.

Elmwood Capital has realized nearly 500% return from that initial investment in 3 years.

Earnings and revenue growth have been powered by gaining market share and the dominant position in traditional broadcast media graphics applications.

Johnson College of Business student Andy Brooks adds these comments:

I recently bought shares in Chyron, seeing this company as a great investment for my first purchase in the stock market. From recognizing the change in how news and advertising reaches my generation, I could see that Chyron was leading the way in innovation with products like ChyTV and especially Chyron Online. They are not standing still, but differentiating themselves from competitors. Being English, and knowing how big BSkyB (British Sky Broadcasting) is back home, it is evident that Chyron’s growth into the international markets shows their dominance in the US will expand worldwide.

Chyron’s sales in Europe grew 45% in 2007 and in the rest of the world (not including the US) by 66%. BSkyB investigated all alternatives in 2007, and decided to switch to Chyron as its provider for all graphics applications.

Chyron will undoubtedly extrapolate this position as the recognized leader in broadcast graphics into the emerging $600 to $700 million market in online, OoH (Out of Home), and mobile messaging, or advertising. Instead of the current pop up and banner ads, messages will graphically integrate seamlessly into content.

Michael Wellesley-Wesley, Chyron CEO:

While the strong performance and results from our traditional broadcast graphics business is creating value for our shareholders and strengthening our market position, the real excitement at Chyron, and what will prove to be the company’s core growth engine for years to come, is the AXIS platform, which forms the foundation of our newest division, Chyron Online. We believe that in AXIS we have a game-changing approach to the process of graphics creation that is in some ways analogous to Chyron’s development of the character generator for the broadcast industry over 40 years ago. However with AXIS the opportunities are infinitely greater because the AXIS solution is relevant to graphics and content creation across all digital media. Just as the very first Chyron graphical displays transformed the way broadcasters worked, interacted with viewers and branded themselves to the world, AXIS will redefine the way graphics are created, not just for the broadcast industry, but for all forms of media whether that media is viewed On Air , Online or On the Move.

The AXIS platform provides us with an unmatched competitive edge, as it is the only web-based graphics generation engine in the world. In its Broadcast application AXIS allows a user to create high quality SD/HD graphics in a fraction of the time it takes with current, traditional methods, and can be done without any training and graphical design skills. Generating graphical content that accompanies everyday television broadcasts, such as maps, stock quotes, weather forecasts, tables, charts and robust over-the-shoulder content, can take up to an hour by way of traditional means.

In his comments from yesterday’s earnings conference call, Mr. Wellesley-Wesley expanded on the potential market by saying:

As other traditional forms of media, such as newspapers and radio, focus increasingly on their on-line offering and its revenue generating potential, we will continue to see an increase in on-line video usage as a means for media outlets to reach their target audiences with relevant contextual advertising and messaging. On-line video is already growing at a very fast pace, and thousands of on-line newspapers have emerged in the last few years. Today there are 7880 English language newspapers in the world, virtually all have an online presence and all are potential customers for AXIS services.

Several major announcements are expected in the next month preceding NAB conference in mid-April. The digital signage segment is making great progress. Axis is currently in beta test with one of the 4 largest internet companies (Google (GOOG), Yahoo (YHOO), Microsoft (MSFT) and AOL (TWX)) which is utilizing AXIS to create data displays in their online portals.

As Serafini stated, “the online model is a natural evolution”. The market in traditional broadcast graphics is $200 million annually, online graphics applications for broadcast media is an additional $100 million, and the potential market for print media web applications adds $300 million annually. Wellesley-Wesley states the current total market opportunity for Chyron is $800 to $900 million annually. Just 3 years ago the total market the company addressed was $120 million.

As Chyron continues this migration from broadcast media into digital media – essentially all media – the revenue model for the company shifts to one of recurring revenue. 5 years ago the company was over $20 million in debt. 18 months ago it eliminated the last $3M of debt. Cash is now well over $6M, and with working capital of $8.5M the company is positioned to make any investment necessary to capitalize on the emerging opportunities that Mr. Wellesley-Wesley and his board and staff identified 5 years ago when they began re-inventing the company.

Doug Pies (Douglas Pies Capital Management in Buffalo) has 50 years experience in financial markets. Doug has been positioned in CGS for several years, and urges that all should perform due diligence in making investment decisions. In his March 2008 update (before earnings), he correctly predicted Chyron’s $.24 eps for 2007. Mr. Pies estimates eps for 2008 at $.48, and has a 2-3 year price target for the stock of $14 - $20. Chyron closed yesterday at $5.38.

Disclosure: Author has a long position in CGS

Comments

[jcsegenmd:]

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I always worry when an article is written about a relatively unknown company by an "unbiased" party who is long on that company; it DOES make one wonder about objectivity, eh?

2008 Mar 15 10:05 AM

[diamondmerc...:]

I think it is relatively simple for someone who has an understanding of Chyron's numbers, listened to the recent conference call and has an ounce of intelligence to comprehend that the author has spent much time analyzing this, and knows what he's talking about. I think that the article is very thorough and complete in looking at what CGS has achieved and where it will go in coming years off of the AXIS platform, ChyTV, Chyron Online etc. There is a good mix of people quoted and great analysis of numbers. I read the authors articles regularly and he has been accurate on many things. I look forward to future articles.

2008 Mar 15 12:20 PM