Okay... I'll sacrifice any semblance of manliness right now and confess that I read
Cooking Light magazine.
Go
ahead and chuckle all you want. Although it's actually my wife's
subscription, I'm not ashamed to admit that I flip through it once in a
while.
Especially since the latest issue contains one of the best recipes for profits in the technology sector.
Yes, you read that right.
A cooking magazine contains financial advice. And here's why you should follow it, too...
Halibut With a Side Order of Profits
While
leafing through the latest issue, I spotted a small note at the top of
a recipe for halibut with olive and bell pepper couscous. It
instructed me to scan the picture with my phone to save the recipe.
However,
the picture didn't contain one of those obtrusive QR codes (the
squared-shaped barcodes), or any other unique identifier, for that
matter. So what in the world was I supposed to scan?
Turns out that I first needed to download the
Digimarc (DMRC) Discover app. That's when I stopped thinking about cooking and engaged my investing mind instead.
Back
in May 2011, I met with Digimarc's CEO, Bruce Davis, at an investment
conference. At the time, the company was just ramping up efforts to get
the word out about its novel technology.
Technology that enables electronic devices to "see, hear and understand" their surroundings, as Davis put it.
So how does Digimarc go about accomplishing such a feat?
The Power of "Invisible Barcodes"
Basically,
Digimarc's technology creates digital watermarks on media and other
objects, including photographs, movies, music, television, personal
identification documents, financial instruments, industrial parts and
product packaging.
A wide range of computers, mobile
phones and other digital devices can then detect and read the digital
information contained in the watermark.
If you're
familiar with the iPhone app Shazam, which can identify any song and
artist when you record a few seconds with the phone, it's powered by
Digimarc's technology.
In layman's terms, Digimarc's technology essentially creates "invisible barcodes."
And that's what
Cooking Light wanted me to scan.
Another magazine in our house,
Southern Living - the nation's seventh-largest monthly paid consumer magazine - is also using Digimarc's technology.
Okay, so what?
Well, as I've noted before, timing is crucial when it comes to unlocking
maximum tech sector profits. We need to invest right before the tipping point of widespread adoption.
And
the fact that this digital watermark technology is now appearing in
various magazines suggests that it's gaining market traction.
But
don't just take my anecdotal evidence as proof of this trend. The
empirical evidence clearly suggests this, too. Consider...
- In 2011, only 13 magazines implemented digital watermarking in 36
separate issues. By the end of 2012, though, 41 magazines featured
digital watermarks in 269 separate issues - huge jumps of 215% and
615%, respectively.
- In 2011, there were a total of 360 unique digital watermarks
embedded in magazines. By 2012, the total number surged 486%, to 2,110
watermarks.
As Ed Knudson, Digimarc's Executive Vice President of Sales and
Marketing, said, "The astonishing growth we've seen in the use of
digital watermarking over the past year confirms that this is the
print-to-mobile technology publishers have been waiting for."
I'll say! And it's translating into real results for Digimarc, too. In the last quarter, net income increased by 57%.
And
there's still plenty of room for growth. Despite the impressive rise
in use, digital watermarking in magazines has penetrated less than 3%
of the addressable market in the United States.
In
addition, digital watermarking technology is used in many other
industries. And that opens up several other avenues for Digimarc...
Digital Diversity
For instance...
- Digital watermarks are used to deter currency counterfeiting. About
a dozen of the world's central banks rely on Digimarc's technology to
protect against fraud.
- Drivers' licenses and other identification documents use digital
watermarking to add another layer of security. Computers and scanning
devices can quickly decode the information and detect fake IDs.
- Media giant Nielsen Company uses Digimarc's technologies to conduct
its audience measurement across more than 95% of the television shows
broadcast in the United States.
- E-book piracy costs $3 billion a year. And Digimarc's recent
acquisition of privately held Attributor Corporation opens up a new
opportunity in this area, too.
The list goes on. But the point is clear: Digital watermarking
technology is increasingly finding its way into sizeable markets. And
as more companies employ Digimarc's technologies in particular, sales
and earnings momentum should continue.
Speaking of which, the company will announce its fourth-quarter results after the bell on Thursday.
I expect a strong report - especially when you consider the company's fundamentals...
- An international revenue stream, with roughly 37% of sales booked overseas.
- A rock-solid balance sheet, with $30 million in cash.
- Strong combined insider and institutional ownership of about 55%.
- It pays a modest dividend (1.9% yield).
Not to mention, the company's technology is protected by a treasure trove of 1,200 patents and patent applications.
Add
it all up, and even though I had to embarrass myself to prove it,
digital watermarking and Digimarc represent the perfect recipe for tech
sector profits.
Ahead of the tape,
Louis Basenese
