Sunday, July 13, 2014

SENSIO Now A Takeover Candidate

SENSIO (SIO.V) has become a legitimate takeover candidate following global deal with LG this week.

SIGNIFICANCE OF THIS WEEK'S DEAL WITH LG

On July 8, 2014 SENSIO announced that it inked a deal with LG to put their 3DGO! streaming app on LG CINEMA 3DTVs in over a dozen countries worldwide.

SENSIO signs an agreement with LG for the international deployment of 3DGO! on CINEMA 3D Smart TVs

This marks the third manufacturer (following Vizio and Panasonic (PC)) to sign onto the 3DGO! platform - but the first to expand beyond the United States. In the United States alone the LG deal should more than double SENSIO's potential market when it launches in October giving SENSIO access to around 40% of all 3DTVs in the US. When the global roll out begins in December SENSIO's customer base will continue to grow as more and more countries are added.

More importantly, the global roll out of 3DGO! will give SENSIO something nobody else has: A global user base of active 3D consumers. Until glasses-free 3DTVs become mainstream (likely still years away) 3D in the home will continue to be a niche market. But niche markets can be extremely valuable if they can efficiently be tapped into. SENSIO's 3DGO! provides that medium. Potential suitors would include names like Netflix (NFLX), Amazon (AMZN) and RealD (RLD), among others.

Existing deals with top named studios like Disney, Paramount, IMAX, and others give SENSIO instant credibility and recognition. In fact LG plans to use characters from these studios to help promote sales of their 3DTVs via SENSIO's 3DGO! in retail stores when they launch later this year.

PATENTS

SENSIO's existing patents also provide further support to SIO's valuation. SENSIO currently has 15 issued patents and 21 pending. Key among those patents include:

Hi-Fi Format - Ability to compress and transmit Bluray quality 3D streams across existing 2D cable, satellite and internet infrastructure.

S2D Switch - Ability to convert any 3D video into 2D video.

AutoDetect - Ability to automatically detect any 3D format (SENSIO Hi-Fi, side-by-side, top/bottom, etc) and automatically convert the stream to a 3D video without the need to navigate 3D menus on the 3DTV.

Global Maxfin estimates that SIO's patents alone are worth $0.13-.40/share.

VALUATION

As of Friday shares of SIO were trading at $0.30/share. This week Global Maxfin increased their price target from $0.50 to $0.75 based on the LG deal and maintain a 'Strong Buy' recommendation on the stock. Following the LG deal this week SENSIO also announced a S2D patent deal with Sony (SNE) which further supports this valuation.

SENSIO SIGNS LG FOR 3DGO! TRIPLE PLAY

SENSIO® S2D Switch Patents Licensed to Sony by WiLAN

Going forward expectations are for more CE manufactures like Samsung and others to license the 3DGO! app from SENSIO. As these deals are announced SIO's valuation potential will only continue to rise as they continue to capture more and more share of the global 3D market.

And with virtually every 3DTV manufacturer currently utilizing technology covered by SENSIO's S2D Switch patent we should expect a number of new S2D deals to be announced in the coming weeks/months through SENSIO's patent agreement with WiLAN (WILN).

1-YEAR CHART




Monday, July 16, 2012

SENSIO-TCL Deal - The Biggest Yet

The TCL Format and S2D Licensing deal announced today achieves 3 major milestones:

(1) It confirms the value of the SENSIO Hi-Fi 3D Format and further cements the value of their S2D patent.

With just Vizio (and to a lesser extent Cyberlink) licensing the 3D format over the last year, there was always the risk that Vizio would decide to stop supporting SIO if no other manufacturers jumped on board. Now that TCL is on board (and China's #2 and #3 TV manufacturers reportedly very close to signing) momentum has taken a swift turn for the better. I expect that Samsung and/or LG will sign with SENSIO prior to the official launch of 3DGO! VOD this fall for fear of being left behind.

News of either of these 3DTV leaders licensing the SENSIO 3D Format would be a game changer for SENSIO. As Ralph Garcea at NCP said after the close today, "Sensio’s 3D technology has the opportunity to become nothing less than a worldwide standard". I'll leave it to the market to speculate on how much SIO shares would rise if either LG or Samsung license the SENSIO 3D Format.

As for the S2D patent: Vizio, Cyberlink, Samsung and TCL are all now licensing the patent. Yet there are other manufacturers out there that are currently still infringing on SIO's patent. It is all but a foregone conclusion that one by one they will eventually have to pay up. The strategy, of course, is that SENSIO will sell them on the 3D Format at the same time. Now with TCL, Vizio, and Cyberlink all licensing the Format, SENSIO's job becomes that much easier.

(2) It takes the pressure off of SENSIO to go to market for additional funding in the near future.

SIO's share price plunged in June as the company announced it was calling off its previously announced financing plans. The stated reason for the cancellation was that market conditions were poor and that the company did not feel issuing stock under .40 was in the best interests of the company and its shareholders. But some investors were concerned that this meant the company would eventually have to issue stock at even lower prices if SENSIO was unable to sign additional deals or generate additional revenues over the next 12 months.

In the last reported quarter (Q3) SENSIO received about $270k in revenues from their licensing agreement with Vizio (up over 300% from Q2). That rate (assuming zero growth) implies almost $1.1 million in annual revenues from Vizio. TCL is now #5 globally, and should be able to generate 2-3 times the revenues as Vizio. That's at least $3-4 million a year from these two SIGNED licenses alone (ignoring growth, ignoring the existing Samsung S2D patent license, and ignoring the probability that SIO signs several more TV manufacturers over the coming weeks/months).

SENSIO's current burn rate is $300k per month, or about $3.6 million per year. With Vizio and TCL we should easily be more than 80% of the way toward being cash flow positive. That puts the timing for a required financing at least 18 months away (if ever). That doesn't mean SENSIO won't come to market for a few million to help speed up the development of their 3DGO store, or to fund another venture, but the TCL deal means if they do it will be on their terms.

Plus, now any major Format deal with a player like LG and/or Samsung could immediately make SIO cash flow positive. After that, everything else is gravy. Given the current momentum, SENSIO easily has the potential to generate $10-15 million a year in revenues by the end of 2013. That could mean $10 million or more in free cash flow, or $0.20 a share in cash per year. A 5-10x multiple puts SIO share valuation @ $1-2/share. I think that is very reasonable. If you want to come up with an "upside" number then consider 100 million 3DTVs are expected to be sold in 2014. If LG and Samung license the 3D Format then that's easily over 50 million 3DTVs. At just .50 per TV that's over $25 million in revenues. And that could be also end up being conservative.

(3) The deal confirms that 3DGO! will launch this fall (September)

The risk of a successful 3DGO! VOD launch has always been the lack of eyeballs (i.e., the number of SENSIO-enabled 3DTVs out there to watch the SENSIO 3D format). The TCL deal not only immediately adds millions of SENSIO enabled 3DTVs to the list, but greatly increases the odds that TCL's competitiors (Samsung, LG, etc) will sign on to the format to ensure they're not left behind.

SENSIO's 3DGO! VOD initiative has always been to push the sales of their 3D Format. As SENSIO announces more content/studio deals in the coming weeks to support their VOD service, the value of their 3D Format will continue to grow in the eyes of TV manufacturers. And while I am ignoring revenues from 3DGO! from this analysis, it also has the potential to add significantly to the bottom line in the near future.

Sunday, July 8, 2012

SENSIO 3D - Time to Break out of the Range?

Other 3D stocks like RealD (RLD) have had an incredible run since the beginning of the year, yet SENSIO Technologies (SIO.V) has been stuck in a .25-.50 range for over a year now. But recent price action suggests another test of the top of the range is coming soon. SENSIO was up as much as 40% at one point on Friday on higher than usual volume before closing up 18%.

A break of .50 would suggest a move right back to the .90-1.00 area. But to do that SENSIO will need to deliver on it's promises and prove to the market that they can execute their business plan. If they can execute, then SIO is a potential 10-bagger from here.

Back in January SENSIO announced a LOI with TCL (China's largest TV manufacturer) to license the SENSIO 3D format in all TCL 3DTVs. If SIO can finalize the deal with TCL then SIO's share price could easily double on the news.  

Senior management at SENSIO was recently in China and rumors are that the trip went very well. Apparently one of the "issues" has been that SENSIO is simultaneously negotiating with the #2 and #3 TV makers in China at the same time and need to be careful that all the terms and conditions are consistent. 

SENSIO also recently announced a patent deal with Samsung. However the patent deal is for the S2D switch (not the 3D format) so the market reaction was muted. But SENSIO now has their foot in the deal and an upcoming 3D format deal with Samsung is a real possibility. A 3D format deal with Samsung would be huge.

 
(Click on chart to enlarge)