Hitting a 52-week low on news is one thing, but blowing through it is another.  When you consider it coming from a hot IPO touted by Cramer at one point then it’s even worse.  Enter DivX, Inc. (NASDAQ: DIVX).

DivX is being punished in after-hours trading.  The media player company posted a 47% revenue gain to $24.5 million, while earnings were $0.11 GAAP EPS and $0.16 non-GAAP.  First Call had estimates pegged at $0.15 non-GAAP EPS on $22.54 million in revenues.  These would have been fine, except for their guidance below.

Is expects revenue for technology licensing of about 75% for the first quarter and 75% to 85% for the balance of 2008; expected revenue for media and other distribution and services of about 25% for Q1 and 15% to 25% for the balance of 2008.  Here was its formal growth forecast, and here lies the problem:

• It is also forecasting $24.5 to $25.5 million in Q1 revenues and $95 to $100 million for 2008, and it sees its core non-GAAP EPS for Q1 at $0.13 to $0.15 EPS and sees 2008 at $0.44 to $0.52 EPS.  First Call has Q1 estimates at $0.19 non-GAAP EPS on $26.29 million revenues, and estimates for 2008 are $0.67 non-GAAP EPS and $104.24 million in revenues.

That old break-up looks farther and farther away.

If you read through the quotes, it is all positive in the start.  DivX noted that the 2008 focus will be its highly profitable core licensing business and other key growth strategies balanced with managing investments for growth and delivering shareholder value.  Unfortunately, it also notes that it has less visibility for the second half of 2008 and it is taking a "measured approach."  It sees non-GAAP projected EBITDA up 25% to 30% for full fiscal 2008.

It also sees Stage6 operating costs and related accruals ofapproximately $4.0 million ($2.4 million, or $0.07 per diluted share,net of related taxes) for the first quarter and for 2008; impairmentand other milestone write-offs related to Veatros of approximately $1.0million.

The market is supposed to be able to act as a discounting mechanism,but it still punishes small cap growth stocks that lower downexpectations.  Positive comments won’t smooth that over.

DivX closed up almost 8% at $10.19 today ahead of earnings.  But sharesare down almost 25% at $7.65 in after-hours trading, and shares havetraded between $8,78 to $23.76 over the last 52-weeks.

DivX lovers who play golf would consider this report a divot.

Jon C. Ogg
March 11, 2008

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