Still Potential Upside For SeaChange International

• The share price of SeaChange International SEAC has declined more than 23 percent in the last six months, from this year’s high of $8.35 to $5.84 at market close on September 2.
• Brean Capital’s Todd Mitchell has reiterated a Buy rating and price target of $11 on SeaChange International.
• Mitchell believes that there is meaningful upside potential for the stock, with the negative impact of the decline in legacy products starting to wane and due to new product launched.

The company’s F2Q16 results were reflective of positive trends in its next-gen product revenues. Although total revenues declined in-line with the expectations, there was a positive mix shift due to a 51 percent rise in next-gen product revenues. This in turn led to gross margin of 53 percent, beating the estimates. Total operating expense also declined during the quarter.

The management maintained its FY2016 guidance, while issuing the F3Q16 outlook. Mitchell expects the F3Q16 results to be “driven by trends similar to F2Q16 with overall product revenues growing sequentially and the mix on product revenues continuing to shift to nextgen product revenues, while service revenues continue to trend flat on a sequential basis.”

According to the Brean Capital report, the FY2016 guidance implies a conservative stance on LGI’s launch of the SeaChange Nucleus-based video CPE, as well as the potential for winning new customers. “[T]he introduction of new SaaS products could point to upside in 2H16, or at least stronger momentum going into F2017,” the report stated.

Mitchell also believes that SeaChange is well positioned for the TV Everywhere transition and the new B2C OTT distribution models. “Together, we continue to believe that these factors make the company a highly strategic asset to a potential acquirer,” Mitchell added.