The market was fairly quiet today with many investors spending their last summer week basking in the sun, sipping on margaritas, and enjoying the last days of the S&P above 1,000.  In fact news was so thin this morning that the NY Times business cover story told you about retargeting as the reason why you keep being offered the same candles on every website you read.  Then near the end of the day, for no reason other than inertia, the market nosedived as if it were Kirstie Alley and it were diving for a box of Krispy Kreme doughnuts.

The only macro news out today was that consumer spending rose .4% as consumers bought more automobiles, durable goods, and delusion.  While the rise in consumer spend is slightly positive (in the same way that learning you have AIDS but your hemorrhoids went away is slightly positive), personal incomes were up less than guessed (well personal incomes for those who actually have personal income) and as a result the savings rate declined from 6.2% to 5.9% which is still well above where it was before the global economy started doing its impression of Taylor Rain in Apprentass 3 (though without the pure joy, excitement, and craftsmanship) but with the economy continuing to get rougher than Keith Richard’s liver at Mardi Gras, a declining savings rate is not a great sign.

Internationally, Japan has laid out a plan to kick start their economy which includes expanding the money available to banks, adding an additional 6 month loan facility for banks, and upping the requirements on all bukkake movies from five participants to eight.  Critics say this isn’t nearly enough to help combat the rising yen, prolonged deflation, and increasing appetite of Kobayashi and they contend that unless Japan can figure out significant ways to energize the economy, the country’s growth prospects will remain bleaker than Shigeru Akabane‘s.  With the proposed actions by Japan’s government underwhelming more than Eddie Lampert’s performance or the demand for a Gabrielle Sidibe sex tape, the yen reached new highs today and thus unless the government can curb the rise of the Yen (perhaps by showing it pictures of Kathy Griffin au naturale), Japan may continue their decades long slump and further serve as the model for where the US economy is headed.

In stock news, a flurry of M&A continues to occur as companies are sitting on hordes of cash and are facing growth prospects that are diminishing faster than Paris Hilton‘s career (that is if she ever really had one).  Sanofi-Aventis’ offer to buy Genzyme for $18.5B was turned down by Genzyme’s board as being “unrealistic” as Genzyme’s board was shocked that anyone would want to buy a company best known for causing viral contamination in the production process (though they say they have fixed those problems by moving most of their production out of Pam Anderson‘s vagina where they had plenty of space and land was unbelievably cheap).  Genzyme is known for making drugs to treat rare diseases like Gaucher disease and Fabry disease and is said to be working on a treatment for the dreaded blue waffle disease (and kind readers, as this is a family site, Money McBags can not link to said blue waffle disease but if you are feeling adventurous and have a strong stomach and a short memory, throw it in to google, but remember, you were warned).  Genzyme’s biotech portfolio would make a nice fit with Sanofi-Aventis’ developed drug portfolio and given Genzyme’s recent problems and Carl Icahn’s two board seats and likely desire to sell, Money McBags would not surprised to see a deal get done and at a price a bit higher than the delicious $69 offer of today (and that may be the first time anyone has ever turned down a 69 unless Whoopi Goldberg was involved).

In other M&A news INTC announced they are buying the wireless unit of Germany’s Infineon for $1.4B and a year’s supply of sauerbraten while 3M announced a ~$900MM offer for Cogent to help them penetrate the growing biometrics market.   This comes on the heels (and don’t ask Money McBags why it aimed for the heels, perhaps it was either looking at nice feet or was a podophiliac) of Cogent competitor L-1 Identity Solutions saying they were likely to sell themselves for ~$1B in a deal to be announced shortly.  As the world becomes bigger, more diverse, and more paranoid, tracking people through fingerprints, palmprints, iris detection, and muff recognition, is only going to become more important and standard so seeing this space consolidate is less surprising than the answer to the NSFW #1826.


In small cap news, DGIT got absolutely walloped today as if it had run out of Chicken McNuggets.  The company announced that they were lowering guidance for Q3 to $51MM-$53MM (Street guesses were $61.5MM) and EBITDA to $23MM-$24MM with full year guidance now for $230MM-$234MM of revenue (Street guesses were $246MM) and $105MM-$107MM of EBITDA.  On that news the company dropped nearly 40% despite having ~$79MM in cash, no debt, a market cap of ~$430MM, and also announcing a 30MM share buyback.  So in the immortal words of Beethoven circa 1810, “huh?”

Look, DGIT is a nice little company with good returns, a solid balance sheet and has been growing 20%+ for several years now as the HD advertising market takes off.  As Money McBags understands it, the company basically has a box which they place at TV stations and that box allows them to deliver digital advertising content to the station’s tv feeds (the box being on site is valuable real estate and is perhaps the most valuable box in tv after Heidi Klum‘s).  The company has been growing though as they can charge a higher price for showing HD commercials than they can for standard definition with pretty much the same infrastructure so as HD TVs and channels continue to grow in popularity, so does DGIT’s revenue and earnings and the fact that they have a box on location keeps out competition.  HD revenue was up ~100% for DGIT last Q and grew from $1.2MM in 2006 to $60MM in 2009.

Back when Money McBags worked for the man, his fund owned this stock  but he was not the primary person responsible for its coverage so he is a little short on most of the company details as he would usually nod out and dream of Hayley Atwell when this company was being discussed in the weekly meetings.  That said, he went back through his notes today but they appear to be less useful than a pet rock, so his analysis and understanding of this name is a bit lacking.  The company is now trading at 3.5x this year’s EBITDA guidance or ~3.8x after the share buyback and at ~7x next year’s analysts’ earnings guesses which will likely come down today but should be helped by an ~8% reduction in shares.  And even with lowered guidance, the company is still projecting 15% t0 20% revenue growth so its not like their business is going away.  Management is chalking up the lowered guidance to “seasonality” which is usually a fancy way of saying “we have no fucking idea” and a mix shift to more of a wholesale customer in their Pathfire platform, so that’s a bit concerning.

Like KIRK from  the other week after they guided down and got destroyed, the earnings and actual performance of this stock no longer are even in the same galaxy as the stock price.  Whether it’s naked shorting (and Money McBags is 100% against naked shorting unless January Jones is the one who will be naked her shorts), high frequency trading algorithms getting tripped by lowered estimates in First Call, or the ghost of Nipsey Russell, a 40% sell off for this business just doesn’t make any fundamental sense.  That said, as Money McBags is not fresh on the story and a bit fuzzy on exactly how their business works so these are the questions he would want answered before making this a position (though to be honest, it is so fucking cheap right now this is one of those times you can almost shoot first and ask questions later, like walking in to an orgy featuring Christina Hendricks, Brooklyn Decker, and Bree Olson).

1.  Explain the business model and method of advertising delivery in more detail?  How important is the physical location of the boxes you have which serve up advertising and why isn’t this all done through the internet anyway?  And yes this is the most obvious and broadbased question possible, but we might as well start at square one.

2.  Along those lines, can you explain your internet strategy and the Unicast acquisition which the market didn’t really like back when you did it?  What happens when people watch less TV and instead get content delivered to their iPhones and iPads and GOOG phones and soon enough directly to the chips in their heads?

3.  Seasonality?  Really?  You got anything else or did a dog eat your revenue?

4.  How fast can HD keep growing?  What are current adoption rates and what is the revenue difference you get between serving up HD content and standard definition content?  What happens when the market is saturated with HD?  How does your revenue grow then and will international offer up opportunities?

5.  Do these jeans make Jessica Simpson’s ass look fat or is it really just fat (and for the record, Money McBags finds it delectable either way)?

6.  Whom do you consider your main competition and how does their technology or offering differ from yours?  How has Google managed to perform in this market?

7.  Back to this seasonality, really?

Those are just some quick questions Money McBags would like to get answered to better understand DGIT as it looks like a ridonkulous buy right now assuming there is nothing structurally wrong that caused the lowering of guidance.  Money McBags suggests you all do some due diligence here as there could be nice rewards at these levels.

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