SeaChange International - OTT Tidal Wave
Seeking Alpha Analyst Since 2019
Former WSJ and II ranked sell-side analyst covering special situations and TMT.
Summary
- SEAC provides OTT services and solutions to cable operators, media companies and video providers.
- The Company had a soft prior quarter driven by pandemic induced chaos across its customer base, which extended the sale cycle while customers paused to figure out the global economy.
- Yet backlog was up 97%, cost cuts positioned SEAC for operating leverage as the June Q accelerated, and the OTT video market exploded during the stay at home crisis.
- Enterprise oriented comp BCOV just blew out its Q citing strong demand for streaming and OTT video from enterprise customers. OTT CDN provider LLNW similarly beat and raised based on strong streaming demand worldwide.
- We expect a similar positive report from SEAC across its carrier oriented customer set. Admittedly this is a short introductory note, but this is a simple call. The pandemic has accelerated digital media shift and OTT demand worldwide, and SEAC is well positioned to benefit as a rising tide lifts all boats. The stock is dirt cheap based on its last Q miss, small scale relative to comps, and lack of Street following. Using a 3x revenue multiple - a discount to BCOV and LLNW - suggests significant upside from current levels which are detached from fundamentals. We initiate coverage of SEAC with a BUY recommendation and a $5 price target, which represents an enterprise value (EV) of $173MM, a relatively small number versus the multi-billion dollar total addressable market (TAM) the Company is attacking and that is only accelerating due to COVID-19. With that said, with activist investors in the mix, we would not be surprised to see SEAC sold to a larger entity in 2021 after growth re-accelerates in the second half of this year.
SEAC FYQ1 Ended April 30 Report
SeaChange International Reports Fiscal First Quarter 2021 Financial Results
- Revenue backlog at quarter end increased 97% to $21.7 million from $11.0 million at the end of the first quarter of fiscal 2020.
- In response to COVID-19, in late March through May the Company implemented permanent and temporary cost-optimization measures, which are in addition to the actions the Company took in fiscal 2020, which are expected to result in more than $5 million in annualized cost savings.
- Cash, cash equivalents, restricted cash and marketable securities totaled $9.8 million at quarter-end. The Company had no debt at quarter-end.
SEAC Cap Table @ $1.78
SEAC Cap Table @ 3x Sales
About SEAC
SeaChange International, Inc. provides multiscreen, advertising, and premium over the top (OTT) video products and services that facilitate the aggregation, licensing, management, and distribution of video and television advertising content worldwide. It offers video products, including SeaChange Adrenalin, a multiscreen video back office platform that enables service providers to manage, monetize, and deliver a seamless viewing experience across televisions, personal computers (PCS), tablets, smartphones, and other IP-enabled devices; and SeaChange AssetFlow, a content management solution, which is used to receive, manage, and publish content for viewing on televisions, tablets, PCs, and other consumer devices. The company also provides advertising products, such as SeaChange Infusion, an advertising platform to maximize advertising revenue across multiscreen, broadcast, on-demand, and OTT viewing. In addition, it offers SeaChange NitroX, an user experience product that empower service providers and content owners to optimize live and on-demand video consumption on multiscreen and OTT services. Further, the company provides professional, and maintenance and support services, as well as managed services. It sells and markets its products and services through a direct sales organization, and sales representatives and partners, as well as to systems integrators and value-added resellers. The company serves cable system, telecommunications companies, and satellite operators, as well as media companies. SeaChange International, Inc. was founded in 1993 and is headquartered in Acton, Massachusetts.
Analyst's Disclosure: I am/we are long SEAC.
We intend to provide additional commentary in our ongoing coverage of SEAC.
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