We have a new article out as we think few realize this has become a very favourable risk/reward situation:
- Destiny Media struggled for years making a success of its streaming video solution, Clipstream. They're now trying a new approach that holds more promise.
- The stock price is basically reflecting maximum market skepticism, but it isn't reflecting improving fundamentals, intellectual property and market opportunities.
- We think the risks are much smaller than the potential gains, even if Clipstream doesn't become a success.
SNY) | Seeking AlphaEssentially, their bread and butter business (PlayMPE, a secure way for the music business to send pre-release music) is growing revenues again, it's costs have been considerably trimmed and it is becoming more user friendly, opening up new users.
It is also highly automated hence additional revenue goes disproportionally to the bottom line.But that bottom line isn't very visible as the profits ($1M-$1.5M) are used to finance the development of the second product, Clipstream (a way to use javascript and HTML5 browsers to get streaming video over the internet).
While working well in controlled circumstances, it ran into problems in the real world, for instance by ISPs throttling streams (as these streams come from normal, not streaming servers ISPs don't recognize them as streaming video).
This is now being addressed by using a much more efficient codec, HVEC (or H.265) that uses much less bandwidth (increasing profit margins in the process). This works, but it ran into another problem, old computers and their CPU/memory limits (as javascript is a resource hog).
They hope to address this by offloading part of the processing to the GPU. In principle, this should work as the GPU is designed to handle massive parallel data. But the jury is still out, you can follow the progress on the Destiny website where they have demo videos. This is work in progress, but by the end of the first quarter we should know a lot more.
If it works well enough, they have a tremendous opportunity, because:
- The company's market cap is just $8M
- The video streaming market is a massive (multi-billion dollar) market with fast growth, just a tiny sliver of it would dramatically impact Destiny's finances.
- They have ways to differentiate themselves with Clipstream, it's a software, not a hardware solution, it can do stuff that other solutions can't, it has the same top-notch security features as PlayMPE, it can lock streams to a host, it enables selling streams individually, it could make ads interactive, etc.
- Just like PLayMPE It's also a highly automated, and hence a high margin business, although in the beginning this will be masked by marketing cost.
- They have built a content delivery system (on top of the AWS system where it is hosted) that allows it to light up servers anywhare in seconds, only using AWS according to needs, hence always generating money, and the fast switching lowers downtime, so their hosting offering is more robust/reliable. It even opens the opportunity to individualize streams, that is, stream individualized versions of the same content to different users.
Even if Clipstream does not become a commercial success, the company has built a generic video hosting platform for it (on Amazon's AWS) that can function as a stand-alone business. While without Clipstream it doesn't have the same ways of differentiating this business, there are still ways of differentiating on the basis of:
- The content delivery system, that is, reliability
- Offering high-audio quality (twice CD) for music videos, with their contacts from the music industry this could be an attractive offering
- Some security features.
So on the basis of improvements in PlayMPE and the fact that they already built a generic hosting platform, we think there is music in these shares even in case Clipstream won't be a commercial success, considering the fact that the share price is at an all-time low, reflecting maximum skepticism.
The upshot
This can be a multi-bagger if Clipstream turns out to be a commercial success. But even if it doesn't, the shares can still double in a year on the back of improving fundamentals at PlayMPE and the generic hosting business, the platform of which is already built. And all this while the downside risk seems limited to us, considering the crash in the share price.