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2HRS2GO: Macromedia poised for a multimedia future

Investors don't get many chances to cheaply buy shares of the leader in a rapidly growing sector, but Macromedia Inc. (Nasdaq: MACR) offers that now.

(Incidentally, it's great that my employer keeps getting content deals, but it's certainly inconvenient for those of us who have to include these things every time we do a story about a partner. Still, it pays the checks, so why complain? In any case, be aware: ZDNet provides content for Macromedia's website. ZDII supplies stock quotes. You can check it out here)

A wave of retreat among Internet stocks over the last several weeks carried the multimedia software vendor's shares down 38 percent to a close yesterday of 28 5/8, from 46 3/4 in early May. But with just a day or less before Macromedia reports fiscal first quarter earnings, now is as good a time as any to jump back in. In fact, shares are already running up in anticipation of healthy results. Macromedia was higher by 2 1/4, to 30 7/8, in early afternoon trading.



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Perhaps the market remembered Macromedia is one of the few Internet-related companies with sparse competition. Thanks to an aggressive push over the years for its Shockwave animation player, Macromedia has planted itself as the leader for Web multimedia. Flash and Director are the most widely used media tools of their kind, and Dreamweaver is a popular website creator, with a robustness matched by few, if any, programs. Other than Adobe Systems, which trails far behind Macromedia in adoption, no one comes to mind as a multimedia competitor.

"Macromedia continues to be the company to beat in the Web design space," says Steve Frankel, analyst with Adams, Harkness & Hill, which has a "strong buy" rating on the stock. "It really is Macromedia's battle."

Others talk about reinventing their businesses for the Internet. Macromedia has almost completed that already, although the company still wants to do more in the way of software distribution directly from its website. Still, it now gets at least three quarters of its revenue from something related to the Web. As broadband expands and more websites decide to juice up their websites with dancing sounds and grahpics, Macromedia's growth rate -- already steady and reliable -- looks to increase. Banc of America Securities analyst Greg Vogel expects revenue growth of 45 percent this year.

"The biggest challenge for them isn't so much competition as it is driving the rate of multimedia adoption higher," Vogel says. "Multimedia is just beginning to be adopted on the Internet."

And that's the just the software side of things. Macromedia has a content play in mind, with plans to take what was begun with its Shockrave site and expand that into a full-blown multimedia portal of its own. Shockwave.com has a formal debut scheduled for this summer, although there's a beta version on the Web now. CEO Rob Burgess has made no secret of the fact that Macromedia wants to eventually spin off the portal into an IPO, perhaps within a year.

Call it portal gravy, since the meat remains in software. Even at its current pace, that software business is nothing to complain about -- First Call consensus expects Macromedia to report earnings of 14 cents a share tomorrow, double year-over-year. Most analysts are looking at revenues hovering around $46 million, which is roughly 40 percent growth from a year ago.

For those -- including me -- who can do without the razzle-dazzle, Web-on-Acid sensory overload promised by Shockwave.com (Some advice: Get rid of the annoying beeps that accompany the preview site's buttons) and its ilk, a multimedia-filled future isn't something to cheer. But only complete Luddites will deny that multimedia is the future, and right now, Macromedia commands it. Best of all for the company's investors, there are no real caveats about Macromedia, unless you want to nitpick about gross margins, which remain below the company's own goals. Fortunately, that should be solved by the end of this year, says Ed Bierdemann, analyst with Moors & Cabot Dakin. "Macromedia has made very good progress in that direction," he says. "The company has very sound financial management."

Even with today's current price increase, Macromedia trades at less than 30 times next fiscal year's earnings, which is almost a pittance compared to the prices of other Internet infrastructure leaders. But unless the upcoming earnings report falls short of analyst expectations -- and if that was going to happen, the company would have preannounced by now -- Macromedia's price won't stay down for long.

Other issues:

  • eBay Inc.
  • (Nasdaq: EBAY) I have no idea why the stock is retreating today, other than perhaps the usual Buy-On-Rumor-Sell-On-News mentality, but eBay gets a raspberry here for cutting off the Q&A session during the webcast replay of yesterday's earnings call. Despite what pundits and columnists like me often write, individual investors aren't stupid, and they deserve to have as much information as Johnny The Well-Paid Analyst gets.

  • Mindspring Enterprises
  • (Nasdaq: MSPG), eToys Inc. (Nasdaq: ETYS), TheStreet.com Inc. (Nasdaq: TSCM) Look for quarterly reports this afternoon from this trio. Mindspring is expected to post a profit. The other two aren't. Assuming analysts have done the expected (To quote one analyst who shall remain nameless: "I set my estimates there because I know the company can beat it"), all three companies should top estimates.

    Broad indices continued gaining ground this afternoon. With less than two hours left in regular trading, the Nasdaq Composite Index had risen 61.94 to 2681.13, the S&P had gained 17.11 to 1364.87, and the Dow Jones Industrial Average had picked up 124.42 to 10987.58. 22GO>