Liberate Starting to Rate With Investors

The interactive TV software company is building a subscriber base against foes Microsoft and OpenTV.
By George Mannes ,

Among Meehan's more prescient calls on RealMoney.com: In early April, he called a market bottom in this piece, just days after the major market indices hit their lows for the year.

Analysts were pleased with

Liberate Technologies'

(LBRT) - Get Report

quarterly results reported Thursday evening. By Friday afternoon, investors were warming up to the numbers, too.

Reporting financials that were better than forecast, the interactive TV software company persuasively argued on its Thursday conference call that it was gaining momentum in winning business among cable TV operators and able to edge out competitors

OpenTV

( OPTV) and

Microsoft

(MSFT) - Get Report

.

After dipping to $8.40 on Friday morning, down 8.5% from Thursday's close of $9.19, Liberate's shares gained ground to $9.25 Friday afternoon, up 6 cents.

After the market's close Thursday, Liberate reported a net loss, excluding amortization expenses and other charges, of $12.7 million, or 12 cents a share, for the fiscal fourth quarter ended May 31. Analysts had forecast a loss of 14 cents, according to

Thomson Financial/First Call

, while the company had a loss of $11.4 million, or 13 cents per share, in the quarter ended May 31, 2000.

Liberate reported revenue of $16.1 million in its latest quarter, ahead of analysts' estimates and up from $9.1 million in the corresponding quarter one year earlier.

The company says its revenue was driven by the deployment of its software in greater numbers of households. As of May 31, the company's software was deployed in 1.5 million households, up from 1.1 million three months earlier. Liberate says its estimate of 2 million deployments by the end of calendar 2001 looks extremely conservative.

On the conference call, Liberate CEO Mitchell Kertzman sniped at both Microsoft and OpenTV, for different reasons. The Microsoft system used in a recent launch of interactive TV in Portugal "looks kind of one-off to us," Kertzman said. "It doesn't represent significant market progress for them. ... That said, they're the guys we worry about the most."

Despite lurking Microsoft worries, and contrary to what some people may have concluded, Microsoft wasn't much of a factor in Liberate's recent agreement to supply software to the German firm

eKabel

, according to Kertzman. In fact, Liberate went head-to-head with

OpenTV

, he said.

Analysts were generally positive about Liberate in notes issued following the call. Gene Munster, of

U.S. Bancorp Piper Jaffray

, writes, "We believe that

Liberate now has the pieces (design wins, deployments starting) to deliver the technology and services for interactive television on a wide-scale basis. We believe this platform has the critical mass to fuel revenue and earnings growth at increasing rates." (U.S. Bancorp has done underwriting for Liberate.)

It appears that Liberate has enough cash on hand to hit profitability, excluding special charges, by its target date of the second half of calendar 2002. As of May 31, Liberate had more than $276 million in cash and short-term investments on hand, and it's expecting to burn through $24 million to $26 million in cash, including investments, in the fiscal first quarter ending August 31. At that rate, the company has enough cash to last 11 quarters, or through February 2004.

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