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Contributors: Douglas McIntyre Jon C. Ogg

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Saturday, September 23, 2006

Weekend Edition: Online Video Craze Puts DivX IPO at Lofty Terms

DivX Inc. (DIVX) announced the pricing of its initial public offering of 9,100,000 shares of common stock at a price to the public of $16.00 per share, above the original $12.00 to $14.00 range. 7,461,538 shares are being offered by DivX and 1,638,462 shares are being offered by certain of its stockholders. In addition, the selling stockholders have granted to the underwriters a 30-day option to purchase up to an additional 1,365,000 shares of common stock to cover over-allotments, if any. DivX's common stock will be listed on NASDAQ under the symbol "DIVX."

The underwriting syndicate was led by J.P. Morgan as sole book-running manager. Banc of America, Cowen, Canaccord Adams, and Montgomery are acting as co-managers.

What was amazing on the IPO was the overall strength for this company. It has been given valuations that were more expensive than RealNetworks (RNWK) and the company actually licenses most of its core technology instead of having mostly its own intellectual property. The company does have trademarks over its brand names DivX and Stage6, although the prior filings showed much of their core technology was licensed.

Doug McIntyre here wrote a detailed piece on this IPO at the end of May and then again at the end of August. He noted the valuations were lofty in may and then noted that the IPO had actually become more attractive at the end of August. The verdict is still out on the long-term strategic "win" for the company, but they have garnered a lot of interest in recent weeks as a company because they are deemed one of the potnetial beneficiaries of the online video craze. We won't go into the fact that most videos are on other formats, because that is another story.

The company does get royalties over actual products sold. We have to check now, but this premium pricing looks like the company will have an implied market cap of over $500 million, which is getting into the stratosphere. Even with the premium pricing compared to the original range, the pre-market talk has this potentially opening at a premium to the premium pricing. While it seems amazing on the surface, it is obvious the street has a short memory.

Here is how the company describes itself: DivX is a digital media format that puts the tools of digital expression directly into the hands of the people. Since 1999, a global following has embraced DivX as a way to free digital video from the constraints of physical media. Today, DivX technology lets millions of people share in a vivid flow of events and ideas, projected through images that come alive to inspire, amuse, inform, educate and entertain. Since its inception, DivX has been among the world's most popular video technologies and has been downloaded over 200 million times. DivX is helping to redefine the media experience by enabling anyone to create, share and play highly-compressed, high-quality video content. DivX technology now powers an entire ecosystem of interoperable products and services, from a secure digital video distribution solution to tens of millions of consumer electronics devices and popular video software applications. But DivX isn't just a technology. It's a global community informed by creativity and passion for all that is possible with digital media, and that community is growing in strength and number every day.

Jon C.Ogg

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