The Proficient Investor

Amedia Networks, Inc. (OTC BB: AANI), a provider of next generation media gateways to distribute and manage ultra-broadband triple-play services in the home, today issued its first operational update of 2007. Continuing on the company’s momentum in 2006, in which key strategic relationships were formed and major product development milestones were achieved, Amedia began the New Year with revenue generating equipment shipments to Motorola for trials of the jointly developed MIPX home gateway, and a well-attended demonstration of its Broadband Entertainment Center at the renowned International Consumer Electronics Show (CES) that garnered significant media, analyst, and industry interest.

The MIPX product is the first in a line of IP home gateways intended to provide expanded support for data, IPTV, High Definition TV, and Digital Video Recorders using Motorola’s existing Multi-Service Access Platform for exclusive distribution by Motorola under the Motorola brand. In Q4 2006, Amedia successfully passed the IPTV Gateway System Verification Testing Acceptance Test - a major engineering milestone in the Strategic Alliance Agreement between the companies. To date, Amedia has shipped over $475,000 worth of equipment to Motorola for use in both Alpha lab testing and Beta field testing programs.

“Amedia’s relationship with Motorola has benefited our company a great deal,” said Amedia President, CEO, and Director Frank Galuppo. “Not only has our joint development work with Motorola allowed us to accelerate the innovation of our IP gateways and create a valuable product line, but at the same time, our collaboration has enabled Amedia to generate meaningful revenue throughout that R&D process.”

First introduced in late 2006 as a replacement to the PC as the nerve center of the networked home, Amedia’s breakthrough Broadband Entertainment Center platform was again on display at CES 2007 in Las Vegas. The demonstration showcased the Amedia gateway’s unique capability to offer the collective functionality of multiple home entertainment and networking devices, along with a personal media library - all in a single, compact solution. Press, analysts, and industry professionals alike were all keen on the gateway’s versatility - providing subscribers with unbridled access the Web and streaming video as well as enhanced triple-play services such as IPTV, Video-on-Demand (VoD), and online gaming from virtually any television or networked device, while also offering a customizable media library for storing and viewing movies, home video, and music. Amedia also demonstrated the gateway’s ability to transmit content over existing home wiring (e.g. Coax, Cat 5, HPNA, etc.), as well as wirelessly with the latest Ultra Wideband (UWB) technology.

Visiting Amedia’s booth at CES and covering the demonstration were industry reporters from Forbes.com, PCWorld, TMCNet, CED Magazine, Cable360.net, Beta News, TVOver.net, CE Pro, and Business Weekly among others. Amedia also gained the attention of influential industry analysts at CES and throughout January, securing briefings with Gartner, Parks Associates, Forrester Research, IDC, In-Stat, Inflection Point Research, Infonetics Research, Ovum, and Yankee Group.

“If CES was evident of anything, it was that the battle for control of the digital living room has grown fiercely intense - with the players ranging from various product vendors to all types of service providers,” added Mr. Galuppo. “What was most encouraging, however, was Amedia’s ability to stand out from the crowded field with our unique value proposition to both telcos and subscribers - that is, our combination of complete home networking and multimedia content distribution and management within a single device. Our mission resonated positively with attendees overall, and our product demonstration clearly spoke for itself. Needless to say, our team is excited about the ever-growing partnership opportunities and steadily escalating market potential for Amedia in 2007.”

In addition to the further development of new and existing product lines, Amedia continues to test with leading IP-DSLAM equipment providers such as ADTRAN and Calix, which power the access networks of hundreds of service providers, and is working with these vendors toward conducting live customer trials in 2007.

Eric Savitz from Barron’s posted an article on Seeking Alpha about Blockbuster’s (BBI) need to get in on the online movie download business to fully compete with Netflix (NFLX) by offering “Triple-play” services, in other words brick-n-mortar, online and mail delivery.

While it may be true that offering online viewing of films would put Blockbuster in line with other services such as Movielink, Vongo, Apple’s iTunes and now Netflix, the brand itself is suffering. In 2005, Blockbuster not only had the opportunity to buy then fledgling Netflix for $50 million, they were nearly bankrupt and closing stores hand over fist.

It isn’t the first time they have made colossal blunders. In 2000 they signed a 20 year deal with Enron at a time when Enron was venturing into the telecom business. The deal lasted 9 months at which point Enron filed for bankruptcy.

Aside from monetary problems and poor business decisions, the other plaguing problem with blockbuster is selection. Their brick and mortar stores carry primarily new releases and do not carry NC-17 or Unrated films. It is also widely known that Blockbuster edits some videos to make them more “family friendly”. The online offering is much better and they seem to stock much of what the traditional stores do not.

With all that being said, is BBI still a good investment?

Let’s look at the numbers. BBI trades at a whopping 40 times this year’s earnings yet the stock is at $6 a share. EPS is $.16 a share.

NFLX is trading at roughly 28 times this year’s earnings and a stock price of just under $23 a share. With an estimated 34% growth based on next year’s earnings, the multiple is just too low. Were Netflix given the same multiple as blockbuster, you would be looking at a $32 stock. Netflix could have a 50 multiple and be a $41 stock.

I don’t think Blockbuster is even in the same ballpark right now. Their earnings would have to increase significantly at this point to challenge Netflix. Netflix also has a market cap of $1.6 billion compared to Blockbuster’s $758 million. In the long run and especially over the next year I think Netflix comes out on top.

Rainmaker Systems (RMKR) which has had a great run over the last 3 months was given a Neutral status from a buy at Sidoti. In Typical wall street analyst fashion, they had set a target of $10 in december (I mentioned this stock when it was at $6 in October and that it would be a $10.50 target) and now are basically saying get out as if the company is done.

Well it’s not done and I don’t think you need to panic here. If you did buy it when it was at $6, good job and you should take a little off the table. Rainmaker reports on February 12 and I plan on selling before then but not before I hit a double which could very likely happen if the volume continues.

In 2 weeks, I see this going to $12.00.

Apple failed to secure a deal today with service provider Verizon to sell the upcomming Apple iPhone.

Citing “too many strings attached” in reference to a 5 year deal with Apple Inc. Verizon declined to be the first company to market the iPhone’s service.

Apple closed at $85.94, up $.56 cents. Verizon closed at $38.03, up $.20 cents.

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It’s not surprising that AT&T will pick up the reigns in order to lure more business away from Verizon. In the never-ending battle for telco superiority, I believe AT&T is still going to come out on top, despite supporting a device that as of yet is unlikely to be a choice for business users.

At the time of this publication, Mr. Wilcox had no positions in stocks mentioned.

If you don’t usually read thestreet.com then you should start. There is an article today about choosing stocks based on how much the company is buying back shares.

James Altucher discusses the practice of Buybacks in conjunction with TheStreet.com and Stockpickr, one of the best investment research tools out there today.

Once again, Wall Street has this one wrong. Citing Blockbuster’s (BBI) foray into Netflix’s DVD delivery territory and the competition BBI provided in 2005, they believe Netflix has too much of an uphill climb.

Netflix is the premiere name here. Wal Mart failed in their attempt and Blockbuster is too entrenched in brick and mortar business. The issue here isn’t about the price of rentals, it’s who can deliver what they say they can deliver. Netflix is rolling out their watch it now feature, similar to what Movielink and Vongo offer now but soon offering over 70,000 movies.

Here’s the scoop from the street:

Analyst Richard Ingrassia says Q4 ahead of consensus, thanks again to lower content costs, tax credit… But says projected ‘07 growth of 20% remains well below previous anecdotal guidance of 50%… Says BBI’s new Total Access program will continue to siphon NFLX’s new-subscriber pipeline; NFLX faces significantly more threatening competitive situation than in ‘05, when BBI last challenged… Notes NFLX trades at multiple well above range implied by its growth rate, market position, so he still suggests fundamentals-based investors stay away… Cuts $25 tgt to $20.50.

So what’s the real story? Netflix is going on sale. Cutting the target of a stock on the way down just gives contrarian investors the power and price point to buy up the stock. At this level you have maybe 3 points down and over the next 18 months could double in price..

Microsoft (MSFT) released first quarter earnings today and beat the street estimate by 3 cents. Earnings were $.26 cents a share compared with the $.23 cents predicted by analysts on the street.

Knee deep in earnings season, the market rallied today with several of my personal stocks doing very well. Rainmaker Systems (RMKR) closed at $9.75 up $.73 for the day and hitting a 52 week high. Online brokerage house Ameritrade (AMTD) closed at $17.99 up $.48. The Street.com (TSCM) closed at $9.02 up $.13. And Conexant (CNXT) which has just been a dog closed at $1.99 up $.01.

Overall the tape looked positive today giving the bulls a little ground after options expired last week. The DOW closed up 87 points and the NASDAQ was up 34 points.

Two stocks I think worth noting were mentioned by Jim Cramer at http://thestreet.com. Goldman Sachs (GS) and Trump (TRMP). I liked TRMP in october when it was at the level it is now. Since then it has risen and fallen and here it is again worth owning. Goldman Sachs is a class act and deserves the $300 tag Cramer has placed on it. Running the numbers on GS you find that it is trading at 10 times earnings and yet has 6% growth. $246 is a conservative calculation, so $300 is definitely possible based on projected growth and revenue.

Trump (TRMP), despite the problems with the recent casino setback in Pennsylvania has room to move and it’s going to 22.

The performance over the past year of onlline brokerage TD Ameritrade (AMTD) has really baffled me. In December ‘05 they announced a special dividend of $6 per share to shareholders as of January 26th, 2006. The div came and went and so did the investors. Retail began bolting from the stock immediately after the ex-div date, subsequently driving the price from $20 (After the $6 div corrected the price from $26 to $20) in a straight line to $14 in July 2006.

Since then the stock has slowly lumbered back up to $17 and change where it sits now. Even after a great earnings report, which sent the stock immediately up $1, it then dropped back down to $17. So what’s going on here?

I think Joe Investor doesn’t know how to hold his wad. Retail is seeing such small gains and then booking them immediately. Here you have a financial institution that is doing incredibly well in this soft housing market and yet nobody wants to stay in for more than a day? It’s just ridiculous. AMTD looked good when it was at $26 and is an even better buy now at $17. I’m just waiting for the analysts to get out of the picture and stop recommending this stock so the price can recover. Where are the haters when you need them?

At the time of this Publication, Mr. Wilcox was long AMTD.

Apple released first quarter results today. Although they beat the street estimates by a wide margin, they are guiding down for Q2 on warnings their Mac sales are slowing.

This reinforces what I have been saying here. I still don’t think AAPL is a buy here but if you are already long the stock, just hold on.

The thing is, we all knew iPod sales were going to be good because it’s a typical Christmas gift that nearly everyone can afford. However, iPods aren’t going to carry this company alone and they are going to need to focus on what their core business and products are. That means the Mac. The iPhone isn’t even a factor yet because it’s not available until June. Unlike the PC business, Mac users don’t upgrade as often. Partly because they don’t need to, but mostly because it means buying a whole new box and operating system. Not a lot of people buy whole new computers for christmas gifts.

So what does Apple have on the horizon besides the iPhone? Well, honestly not much. If you followed the MacWorld announcements, you know they have the Apple TV coming out which will broadcast from the unit wirelessly to your TV. They also announced the Airport Extreme which uses the new 802.11n specification for wireless communication. Lastly, they have another partnership for iTunes to deliver movies from Paramount. Not a groundbreaking effort but it does expand their offerings which they will need to compete with the likes of Netflix, Movielink and others.

So bottom line, if you have Apple already, hold on to it. If you are looking to pick up Apple I think you should wait for a pullback to between 80-85, possibly even 75.

At the time of this publication, Mr. Wilcox had no position in any stocks mentioned.