New Recommendation-DivX

Closing price May 22, 2009-$4.94

With the recent market rebound, we thought it might be time to look around for some real value stocks that haven’t participated in the rally. We think DIVX is one.

DivX is sitting on $4.24 per share in cash (86% of current market cap) and is only about 28% off its 52 week low.

Its operating performance has not been stellar. Last quarter sales were off 25% to $18.7 million and they lost $1.4 million ($.04 per share). Non-GAAP net income was about $1.2 million.

With basically a royalty income stream, 86% margins and 86% of its market cap in cash, we see little downside risk. Maybe some big company will come along and buy it out at double this price.

Among its shareholders with more that 5% holdings are Royce, Draper, FMR and JDS Capital Management.

DivX trades over 130,000 shares a day, so liquidity is not an issue here.

There are about 32 million fully diluted shares outstanding.

About DivX, Inc.
DivX, Inc. is a digital media company that enables consumers to enjoy a high-quality video experience across any kind of device. DivX creates, distributes and licenses digital video technologies that span the “three screens” comprising today’s consumer media environment — the PC, the television and mobile devices. Over 100 million DivX Certified® devices have shipped into the market from leading consumer electronics manufacturers. DivX also offers content providers and publishers a complete solution for the distribution of secure, high-quality digital video content. Driven by a globally recognized brand and a passionate community of hundreds of millions of consumers, DivX is simplifying the video experience to enable the digital home.


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