DivX and Vonage
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Does the IPO of Vonage tell investors anything about the DivX offering? Certainly since both are in the tech space and are fundamentally software-based enterprises, there are some potential parallels in valuation. Vonage describes its product as "VoIP technology which enables voice communications over the Internet through the conversion and compression of voice signals into data packets". DivX says it has created "a technological platform and galvanized the community necessary to enable a digital media ecosystem". The factor that is very different is that Vonage can claim, at least for the time being, that it is the market leader in VoIP in the U.S. DivX cannot make this claim in its media player markets, especially with the presence of Windows Media and RealPlayer.
Accounting for the drop in stock price since its IPO, Vonage's stock is down 27% from the $17 initial offering . Vonage was priced at roughly ten times 2005 revenue. If DivX was priced on the same basis, it would now be worth about $241 million. The company said it plans to raise up to $135 million. Will they sell 56% of the company in an IPO? Not likely.
The other issue is that the DivX core intellectual property comes from the patent pool MPEG and is licensed through their IP authority MPEGLA. The MPEG patent pool includes intellectual property from companies including Samsung, Sharp, Sony, France Telecom, and GE Technology Development. Some of the IP in this pool is being challenged by AT&T, so it is unclear whether companies like DivX have clear title to it or what will happen if the AT&T claims go to court.
With this kind of IP risk, and DivX holding a market position well behind Microsoft and Real in media player usage, it is extremely hard to see how the company could command even the discounted multiple that Vonage did. In other words, there is little in the way of precedent to justify the company being worth even $200 million.
In the current market environment, deals like this often get shelved, so it would not be shocking if the DivX IPO gets pulled or at least has the terms lowered.
Douglas A. McIntyre
Does the IPO of Vonage tell investors anything about the DivX offering? Certainly since both are in the tech space and are fundamentally software-based enterprises, there are some potential parallels in valuation. Vonage describes its product as "VoIP technology which enables voice communications over the Internet through the conversion and compression of voice signals into data packets". DivX says it has created "a technological platform and galvanized the community necessary to enable a digital media ecosystem". The factor that is very different is that Vonage can claim, at least for the time being, that it is the market leader in VoIP in the U.S. DivX cannot make this claim in its media player markets, especially with the presence of Windows Media and RealPlayer.
Accounting for the drop in stock price since its IPO, Vonage's stock is down 27% from the $17 initial offering . Vonage was priced at roughly ten times 2005 revenue. If DivX was priced on the same basis, it would now be worth about $241 million. The company said it plans to raise up to $135 million. Will they sell 56% of the company in an IPO? Not likely.
The other issue is that the DivX core intellectual property comes from the patent pool MPEG and is licensed through their IP authority MPEGLA. The MPEG patent pool includes intellectual property from companies including Samsung, Sharp, Sony, France Telecom, and GE Technology Development. Some of the IP in this pool is being challenged by AT&T, so it is unclear whether companies like DivX have clear title to it or what will happen if the AT&T claims go to court.
With this kind of IP risk, and DivX holding a market position well behind Microsoft and Real in media player usage, it is extremely hard to see how the company could command even the discounted multiple that Vonage did. In other words, there is little in the way of precedent to justify the company being worth even $200 million.
In the current market environment, deals like this often get shelved, so it would not be shocking if the DivX IPO gets pulled or at least has the terms lowered.
Douglas A. McIntyre
posted by douglas mcintyre at 6:05 AM
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