Work in Progress: RealD, CBOE, Broadsoft and Zipcar

We are wrapping up some research work on RealD with our partner, Research 2.0, and gearing up to do some work on Zipcar. Our interest in both 3D Cinema and on-demand travel has been longstanding and we are both very eager for these deals to be tested in the market.

RealD has enjoyed explosive revenue growth thanks to the surge in 3D cinemas and movies, led by James Cameron’s Avatar. Recent 12 month revenues of $189M make the timing for an IPO very good for the company. Profits have been harder to come by, although factoring out non-cash expenses paints a more profitable picture. The company has engaged in the unfortunate practice of granting stock options to their theater customers, which creates an oddity in the income statement between gross and net revenues that we wish were not there. However, with a $1.5B market opportunity and plenty of room to grow, the RealD IPO is worth looking at.

We just started putting together the roadshow slides for both CBOE and Broadsoft, and they will be in the archive by the end of this week. At the same time we’ll do at least a basic analysis of each with a valuation target to be published on or before deal pricing. CBOE is interesting because they have built a very profitable, very scalable business based on the trading of index-based contracts. They have high market share and advantages in terms of both IP and infrastructure. Broadsoft appears to be a play on expanded demand for broadband services, which is a popular theme. Whether investors see it this way or not remains to be seen.

Lastly, Zipcar has been a long time coming and represents a great on-demand service play, at least on the surface. We had hoped to see this in air travel when the Pogo deal was trying an IPO a couple of years ago before the market collapsed and the IPO business went into hibernation. Personal transportation begs for an on-demand model and Zipcar is a good – perhaps the best – example. So many car owners don’t use their car enough to justify outright ownership that a major market exists for Zipcar. At the same time, by making incremental costs more explicit, the use of on-demand services like Zipcar may go far in reducing our energy consumption and improving our efficiency.

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