Jim Roumell, the manager of Roumell Asset Management, is bullish on SeaChange International (NASDAQ:SEAC) and despite the stock’s weak performance, he believes that the company can turn around, which is why his fund upped its activist stake in the company to 2.02 million shares, from 1.69 million shares disclosed in the latest 13F filing. The stake amasses 6.2% of the company’s outstanding stock. Mr. Roumell also sent a letter to the company’s board outlining his position regarding the company and addressing several issues that undervalue the stock in his opinion.
SeaChange International (NASDAQ:SEAC) is a company engaged in multi-screen video delivery offering products and services that facilitate the licensing and distribution of video, TV programming and advertising content. Roumell considers that the company stands in a good spot to profit from the major shift in the way consumers perceive video content. Moreover, in his letter to the board, the manager of Roumell Asset Management said that it likes the current management of the company, in particular for its decision to leave SeaChange’s non-core hardware and media services segments and focus its Research & Development budget on developing next-generation software.
However, despite the company adopting a new strategy three years ago, its stock has still lost around 7% since then, while over the last year the decline has been even bigger – 41%. The fall of the stock can be attributed to the drop in revenues and earnings, SeaChange International (NASDAQ:SEAC) reported revenues of $30 million and EPS of -$0.17 for the last quarter, versus $37 million and -$0.01 for the second quarter of 2013.
Nevertheless, Roumell considers that SeaChange’s Adrenalin multi-screen video platform has a chance to help the company grow its revenues and profits, taking into account that over the last three years since the adoption of a new strategy, SeaChange International (NASDAQ:SEAC)’s next-gen software has been picked by around 50 companies and covers about 50 million subscribers. The investor believes that Adrenalin can get around 30 million new subscribers over the next couple of years, with many subscribers switching from the company’s Axiom software which is 15 years old in a need for an upgrade. Moreover, Roumell added that the decline in revenue is mainly caused by the obsolence of legacy software products, such as Axiom. With more subscribers adopting new software, the decline in revenue will amount only 10% of the total revenue at the end of 2014, which means that with the bottoming out of legacy software declines the stock might start to climb. Therefore, SeaChange represents an attractive opportunity at the moment.
In addition, Roumell proposed that the Board should further expand its stock buy-back plan. While SeaChange International (NASDAQ:SEAC) increased its buy-back earlier this year to $40 million, the investor is still disappointed that a limited number of shares has been acquired, in relation to the amount of cash the company holds. Seachange requires around $50 million in cash in its balance sheet, in Roumell’s opinion, and in this way investors can own more of the actual business rather than cash from the balance sheet.
Among the investors that we track, many have reported bullish stakes in the company in the latest round of 13F filings. Chuck Royce‘s Royce & Associates increased its position by 74% during the second quarter and now owns around 1.6 million shares of the company, followed by Jim Simons‘ Renaissance Technologies with a 54% increase to 978,600 shares. Steven Cohen also added SeaChange International (NASDAQ:SEAC) to his Point72 Asset Management’s equity portfolio and owns 288,600 shares as of the end of June.
While the aforementioned investors have not allocated a lot of their equity portfolios to SeaChange International (NASDAQ:SEAC), Roumell bets big on the company, the stake amassing over 16% of the fund’s equity portfolio. Being focused on “finding value through out-of-favor, overlooked or misunderstood securities,” Roumell might strike gold if its assumptions regarding the company’s future come alive.
The full letter with all the points outlined by Roumell can be found below:
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