As a rule, individual investors shouldn't chase hot initial public offerings. Most IPOs, after an initial run up, return to earth with a thump. StarSight Telecast is a case in point. It went public on July 30 at 15. A few weeks later the stock was nearly 26, and the shares currently trade at 14 1/4. Some savvy pros say now is the time to get in.
StarSight is not for the faint of heart. The Fremont (Calif.) company expects to see revenues for the first time this year and is years away from profitability. "It's speculative," says Mark Regan, a portfolio manager with Massachusetts Financial Services, "but if it works, it's big money."
For a few dollars a month, StarSight will provide viewers with an interactive system to help navigate the hundreds of channels that cable TV will eventually offer. For starters, StarSight provides program listings for every channel for a week, not just for a few hours ahead. With a special remote control, a viewer could hit a topic, say, "sports," which would generate listings of sporting events on all channels. Another button on the remote control instructs your VCR to tape it.
"StarSight would be a nice product in today's 50-channel cable environment," says analyst Alan S. Gould at Kidder Peabody, which co-managed the IPO. "But it will be a necessary product when you have 150 or more channels." Listing hundreds of channels will be unwieldy for TV Guide and the papers.
BIG BACKERS. To receive the programming, subscribers need a StarSight chip in their television, VCR, or cable converter box, or a freestanding converter unit. StarSight has already enlisted Zenith, Goldstar, Mitsubishi Electric, and Samsung to put the chip in some TVs and VCRs. Cable-box manufacturers Scientific-Atlanta and General Instrument will include the chip in new converters. But StarSight is not dependent on cable companies linking it to homes. The service will also be available over the airwaves.
StarSight faces competition in interactive program guides, including TV Guide's electronic listings. But the fledgling company has big names in its corner. Viacom owns a 21.4% share, and strategic investors--which include KBLCOM, Times Mirror, Providence Journal, Cox Communications, Tribune Co., and Spelling Entertainment--in total own nearly half the stock. In addition, these investors will offer StarSight over their cable systems. StarSight will soon debut on a Viacom cable system in Castro Valley, Calif.
True, StarSight filed patent infringement suits against Gemstar Development and United Video Satellite Group, and Gemstar countersued StarSight. But Gould argues that StarSight's partners would not have invested if the patent wasn't secure.
Gould estimates StarSight will be in 23% of U.S. homes by 1998--which should produce some $300 million in sales and $100 million in profits. Shareholders won't have to wait that long to be rewarded. Gould thinks the stock will sell at 30 within 12 months.