Bitstream Inc. (NASDAQ:BITS)Feb 5, 2010
AgendaExecutive SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR F...
Recommendation: SELL12-month price target: $5.18(40% downside)1) Core business erosion over next 3-5 years2) New Mobile Br...
AgendaExecutive SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR F...
Company Overview: BITS and piecesBitstream – “CLEAR Fonts, BLURRY Future.”Source: Company Documents and Student Analysis.
AgendaExecutive SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR F...
Investment Thesis:I. Core businesses losing market shareProducts lack competitivenessCustomers moving toward proprietary...
Investment Thesis:II. Mobile browser likely to disappoint Late entrant into an over-crowded market Small and inactive us...
Projected Revenue Mix0%10%20%30%40%50%FY 09E FY 10E FY 11E FY 12E FY 13E FY 14EFONT TECH FONTS PUBLISHING TECH MOBILE TECH...
-150%-100%-50%0%50%100%FY 09E FY 10E FY 11E FY 12E FY 13E FY 14EFONT TECH FONTS PUBLISHING TECH MOBILE TECHProjected Opera...
III. High price due for a fall• Stock up over 50% in ~90 days since launch ofmobile browser• EBITDA MultipleSkyrocketed fr...
AgendaExecutive SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR F...
2005A 2006A 2007A 2008A 2009E 2010E 2011EEV/EBITDA BITS Peer AverageBITS is trading at a premium to peersSource: Company D...
-8%-6%-4%-2%0%2%4%6%8%10%12%14%2008A 2009E 2010E 2011EYOY Revenue Growth BITS PeerAverageBITS is trailing in Revenue Growt...
2008A 2009E 2010E 2011EEBITDA Margin BITS Peer AverageEBITDA Margins below Peer AverageBitstream – “CLEAR Fonts, BLURRY Fu...
Discounted Cash Flow Valuation forBitstreamDollars in thousands, except per shareFY 09E FY 10E FY 11E FY 12E FY 13E FY 14E...
Valuation SummaryBitstream – “CLEAR Fonts, BLURRY Future.”Source: Company Documents and Student Analysis.
AgendaPresentation SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEA...
Risks to our recommendationExternal factors:• Faster than expectedeconomic recovery• Weaker dollar• Market inefficiency• T...
AgendaPresentation SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEA...
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Nyssa 2010 presentation

  1. 1. Bitstream Inc. (NASDAQ:BITS)Feb 5, 2010
  2. 2. AgendaExecutive SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR Fonts, BLURRY Future.”
  3. 3. Recommendation: SELL12-month price target: $5.18(40% downside)1) Core business erosion over next 3-5 years2) New Mobile Browsing Venture is likely todisappoint3) Sky high multiples are headed for a fallBitstream: Clear Fonts,Blurry Future…Bitstream – “CLEAR Fonts, BLURRY Future.”
  4. 4. AgendaExecutive SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR Fonts, BLURRY Future.”
  5. 5. Company Overview: BITS and piecesBitstream – “CLEAR Fonts, BLURRY Future.”Source: Company Documents and Student Analysis.
  6. 6. AgendaExecutive SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR Fonts, BLURRY Future.”
  7. 7. Investment Thesis:I. Core businesses losing market shareProducts lack competitivenessCustomers moving toward proprietaryproductsAbsence of pricing powerBitstream – “CLEAR Fonts, BLURRY Future.”
  8. 8. Investment Thesis:II. Mobile browser likely to disappoint Late entrant into an over-crowded market Small and inactive user base On the losing end of atechnology arms race42 M4503 M 27Opera BITSMonthly pageviewsper downloadNumber of DownloadsBitstream – “CLEAR Fonts, BLURRY Future.”Source: Company Documents and Student Analysis.
  9. 9. Projected Revenue Mix0%10%20%30%40%50%FY 09E FY 10E FY 11E FY 12E FY 13E FY 14EFONT TECH FONTS PUBLISHING TECH MOBILE TECHBitstream – “CLEAR Fonts, BLURRY Future.”Investment Thesis:Source: Company Documents and Student Analysis.
  10. 10. -150%-100%-50%0%50%100%FY 09E FY 10E FY 11E FY 12E FY 13E FY 14EFONT TECH FONTS PUBLISHING TECH MOBILE TECHProjected Operating Income MixBitstream – “CLEAR Fonts, BLURRY Future.”Investment Thesis:Source: Company Documents and Student Analysis.
  11. 11. III. High price due for a fall• Stock up over 50% in ~90 days since launch ofmobile browser• EBITDA MultipleSkyrocketed from 13.5xto 22.0x• Yet fundamentalsremain unchanged$4$5$6$7$8$9J-09 A-09 J-09 O-09 J-10BITS PriceNew MobileBrowser launch22.0x13.5xBitstream – “CLEAR Fonts, BLURRY Future.”Investment Thesis:Source: Company Documents and Student Analysis.
  12. 12. AgendaExecutive SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR Fonts, BLURRY Future.”
  13. 13. 2005A 2006A 2007A 2008A 2009E 2010E 2011EEV/EBITDA BITS Peer AverageBITS is trading at a premium to peersSource: Company Documents and Student Analysis.Bitstream – “CLEAR Fonts, BLURRY Future.”Valuation: Market Approach
  14. 14. -8%-6%-4%-2%0%2%4%6%8%10%12%14%2008A 2009E 2010E 2011EYOY Revenue Growth BITS PeerAverageBITS is trailing in Revenue GrowthValuation: Market ApproachSource: Company Documents and Student Analysis.Bitstream – “CLEAR Fonts, BLURRY Future.”
  15. 15. 2008A 2009E 2010E 2011EEBITDA Margin BITS Peer AverageEBITDA Margins below Peer AverageBitstream – “CLEAR Fonts, BLURRY Future.”Source: Company Documents and Student Analysis.Valuation: Market Approach
  16. 16. Discounted Cash Flow Valuation forBitstreamDollars in thousands, except per shareFY 09E FY 10E FY 11E FY 12E FY 13E FY 14EFree Cash Flow to the Firm 1,257$ 2,021$ 2,054$ 2,020$ 2,267$ 2,431$WACC @ 10 .53% 0.905 0.819 0.741 0.670PerpetuityGrowth 4.5%Terminal Value @ FY 14E 42,116Enterprise Value 35,036Less: Long-Term Debt 0Add: Non-Operating Assets 17,431Equity Value 52,467DCF Value Per Share $5.12Projected Fiscal YearsBitstream – “CLEAR Fonts, BLURRY Future.”Source: Company Documents and Student Analysis.Valuation: Discounted Cash Flow
  17. 17. Valuation SummaryBitstream – “CLEAR Fonts, BLURRY Future.”Source: Company Documents and Student Analysis.
  18. 18. AgendaPresentation SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR Fonts, BLURRY Future.”
  19. 19. Risks to our recommendationExternal factors:• Faster than expectedeconomic recovery• Weaker dollar• Market inefficiency• Takeover riskInternal factors:• Improved operationefficiency• Signing new largecontracts• Technology innovation• Stock buy back ordividendsBitstream – “CLEAR Fonts, BLURRY Future.”
  20. 20. AgendaPresentation SummaryCompany OverviewInvestment ThesisValuation MethodologyInvestment RisksQ&ABitstream – “CLEAR Fonts, BLURRY Future.”

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