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Now that I have suffered through Jones Soda’s terrible earnings report I now get to look forward to Gigamedia’s (GIGM) earnings report. They will also be reporting their Q4 2007 and FY 2007 financials. Oh and by the way, I do own shares in this company. I am actually looking forward to this report though. GIGM has been a solid company for me, and I have owned their stock for almost two years now.

Many people may not have heard of this company, and that is understandable. They are an ISP (Internet Service Provider) and web portal over in Tiawan, China and Hong Kong. The official description from Reuters reads, “GigaMedia Limited (GigaMedia) is a holding company that develops and licenses entertainment software and provides application services, owns and operates an online games portal and provides broadband Internet access services through its subsidiaries.”

One of the big things the company has going for it right now is their gambling applications. Many people may want to shy away from a company that makes revenues off of gambling, thinking that it is illegal. Well, Gigamedia does not operate in the United States and is therefore not subject to the online gambling rules and restrictions of the United States. They are free to operate as they please, and their site has caught on. Everest Poker and Mahjong have been some of their top performers recently. They have also struck some deals through Electronic Arts to operate some of their online games. Such popular titles include Warhammer and Hellgate London. Most of the games that Gigamedia offers are through its subsidiary Funtown. Take a look at the Funtown site. It looks pretty interesting, although I can’t make out any of it since it is all written in Chinese.

Analysts are expecting an EPS of $.17 for Q4 2007 and $.65 for FY 2007. EPS for Q4 2006 was $.19 and .$51 for FY 2006. So, analysts are expecting lower earnings for the quarter, but higher overall for the year. I think that the stock is priced perfectly right now, especially since it has been trading in a fairly narrow range over the last three months. Personally, I am expecting them to do better than analyst predictions. Their current P/E is at 28.96 based off an EPS of $.64. If they hit the EPS of .$65 that is being predicted, we could expect the stock to climb from its’ current position at $18.50 to $18.82.

Irregardless of the outcome of this quarters/years earnings, I plan on holding my shares for some time longer, as I see this company having a lot of potential to do good things.

Update 3/17/2008: So I am pretty bummed out over what has happened with this stock over the past week. I have watched it sink from $18.50 to $14.24, a decline of about 23%. The P/E has also fallen from 28.96 to 21.98. I think that the price of this stock has been unfairly punished by the market and is due for an increase in the near future. I feel that this is an excellent buying opportunity, since price levels for this company haven’t been this low since early September. I believe that $12.75 will be the approximate bottom. This price prediction is based purely on a hunch. Based on their earnings report and the guidance that was given, I feel that their P/E should be back up where it was before, which would put the stock at the mid to high 18s.

Here is a brief technical analysis chart that I created for the stock over the past month:

I believe that the line that will be the most helpful of the three is the middle line. The most negatively sloping line is far too unattainable and measured over such a short period of time for it to be much help at all. The stock will be ready for a rebound when it crosses over the middle line by 8%. I will try to keep this chart up to date so that we can test my prediction.

As a stock holder of Jones Soda (JSDA) I can’t help but be worried about what their annual report for the year 2007 ended December 31st will look like. Around this time of year last year things were looking great. You couldn’t say a bad word about the company. I rode the stock from $9.41 when I bought it on 9/25/2006 all the way up to $27.82 when I sold it on April 20th, 2007. I bought back in when it was trading in the high $7s, and have been disappointed since. To check out some of my other holdings, click here.

Unfortunately this company has been facing bad news and more bad news over the past year. First off, insiders were accused of dumping their shares right around its peak when the stock started to plummet. This definitely put a negative vibe on the company that until recently could do no wrong. Secondly they had issues making money. You know a company is doing something wrong when the interest that they earn from their free cash is making more money than the company itself. This was largely due to supply issues. The company had solid deals with stores, but they could not keep their shelves stocked. If a customer comes into a store looking for Jones Soda and there is none, then they are going grab whatever else is on sale. Another big issue with the company was that their CEO Peter Van Stolk stepped down from the company leaving them searching for a replacement to run the company.

During the year Jones increased their visibility with a stadium deal with the Seattle Seahawks. They paid a decent chunk of change for these official rights and it will be interesting to see how much the deal contributed to their revenues. One must take note that the Seahawks play only eight home games per year. Being an official soft drink provider is great, but for only eight games a year doesn’t seem to make a whole lot of sense especially for a company the size of Jones. They also inked a stadium deal with the New Jersey Nets basketball team. They have yet to sell there because of pending issues with the NBA. I also believe that the deal is only good for the Nets new stadium which has yet to be completed. On the plus side though, the Nets play 41 home games per year there.

Currently the average consensus of investment firms is that Jones Soda (JSDA) is a sell or an underperform. For the 4th quarter of 2007, analysts predict JSDA to have an earnings per share of $-.03. In comparison, 4th quarter 2006 had an EPS of $.08. JSDA also seems grossly overvalued with a P/E ratio for the trailing twelve months of $230.50 compared to the industry average of a modest 21.56 P/E. If Jones’ P/E were to be at the industry average right now, they would have to be trading at $.43 per share. Ouch! As a current shareholder that does not make me very optimistic. I also have a hard time seeing Jones beat $-.03 per share as well. Personally I think this stock is doomed for the next six months until 3rd quarter 2008 earnings come out sometime in October or November. The other thing that made me nervous was that Jones postponed their earnings announcement by almost a week. I don’t take that for a very good sign.

It will be interesting to see what happens tomorrow when they release their annual report. I will give my opinion of it after I have had the time to read through and digest the report.

Update 3/10/2008: I was expecting them to do bad this quarter, but they did horrible! I think that they will eventually turn things around because they seem like they are a good and legitimate company, but things are really not looking so hot right now. Let’s take a look at some of the awesome financials they reported this fiscal year shall we?

Here is the kicker. Analysts were predicting a loss of only $.03 per share. The reported loss for the quarter was -$.39 per share. Just a slight difference. It is no wonder the stock dropped 25.12% in after hours trading.

One interesting factoid I found was that JSDA’s earnings for Q4 2007 was -$10.204M, while their earnings for the fiscal year 2007 was -$11.629M meaning that the majority of their losses took place during the fourth quarter. Interesting…

Not all companies that trade on the NYSE or NASDAQ are American companies. Some are actually headquartered in a foreign country. Consider the company Cemex (CX) for example. Their company is headquartered out of Mexico. A good portion of their business will be conducted in Mexico, and therefore their payments will be made to them in pesos, the Mexican currency. When they do business outside of Mexico, they will likely be paid in the other country’s currency, which will later have to be converted to pesos.

The main issue with currency risk occurs when a company has to create financial reports for their shareholders. When a foreign company like Cemex creates a financial report for US investors, they list all of their earnings and expenses in US funds, although they are really in Mexican funds. Americans can made better comparisons from one company to the other when everything is in the same currency. The main issue here is that the exchange rate is not always going to be the same. This will create some discrepancies in the financial report that the company gives.

Imagine that in FY 2006, Cemex had total net income of $10 billion pesos. At the time that they reported, the exchange rate was 10 pesos per dollar. This means that on the Annual report to US shareholders, Cemex would report a net income of $1 billion dollars. Now, imagine that in FY 2007, Cemex has a total net income of $11 billion pesos (a 10% increase), but the exchange rate at the end of FY 2007 is 12 pesos per dollar. For FY 2007, Cemex would report a total net income of $.916 billion (a 8.4% decrease). To the Mexican investor Cemex had a great year, but to the American investor the year was a disappointment.

Not everyone invests in foreign companies, but if you are looking into one you should definitely take this into consideration. You could be in for a bit of a surprise if you don’t.