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Will New Pricing Model Attract More Digimarc Customers?

|Includes: Digimarc Corporation (DMRC)

Digimarc Corp. (NASDAQ: DMRC) recently announced a simplified pricing model. Its web-based service platform, Digimarc Discover Online Services will provide a simple sign-up and purchase process that will reward frequent users with volume discounts. Under the new system, customers will be able to achieve lower pricing levels once they have reached a certain level of volume. The purchase will be valid for one year. There is also an option to extend the validity period for another year with a 50 percent discount. Executive Vice President for Sales and Marketing, Ed Knudson, said that the simplified pricing will allow retailers to make their brand assets interactive.

Based in Oregan, the company is one of the leading providers of technology that enables the creation of digital identities in various media forms. Over the last few years, the company has been focusing on increasing its patent portfolio. For instance, they have been recently awarded a patent (8,626,666) related to confirmation of physical custody of objects. In addition to that, they also acquired a company called Attributor Corporation in 2012. The primary reason for the acquisition is that Attributor's Guardian software removes pirated content found on the Internet. This protects revenues and author's copyrights.

Third Quarter Financial Results

The company reported revenues of $7.4 million in the third quarter of fiscal year 2013. This is lower compared to the prior year's revenues of $8.9 million. Fixed quarterly license payments from its client, Intellectual Ventures, ended during this period. However, the higher subscription revenues offset the decline from these quarterly license payments. As a result, operating loss came in at $2 million, reversing the prior year's operating income of $1.6 million. During the period, the company also heavily invested in sales and advertising, as well as research and development initiatives. Overall, net loss reached $0.8 million for the period, or a diluted loss per share of $0.12.

Over the long run, its research and development efforts will soon pay off. In fact, the Digimarc Discover platform is already gaining ground in the market. Last month the company disclosed that is using the Digimarc Discover platform to enable their clients to browse print catalogs.

The overall market for the mobile commerce strategy is expected to reach $31 billion in 2016. Industry analysts believe that this strategy will account for 16.9 percent of all retail e-commerce sales for the next three years. Hence, Digimarc is poised to capture this market in the long run.

However, the current price multiples for the company appear expensive at 94 times earnings. This is due to the fact that earnings levels appear low. In contrast, Open Text Corp. (NASDAQ: OTEX) is valued at 33 times earnings, while CA, Inc. (NASDAQ: CA) trades at 14 times earnings.

Year-to-date, share price has risen by 13 percent. Investors should wait until there is confirmation that earnings can really catch up with its current valuations.