Financial AnalysisFinancial Analysis

Macrovision CorporationAn Overview of Financial Performance

Presented November 30, 2006 by Radityo Ardi Nugraha and Chenchen (Carl) Wang

AgendaAgenda

Macrovision Corporation provides digital lifecycle value management solutions that enable the delivery and enhanced use of software and content.

This presentation provides an overview of our financial analysis.

Overview

Portfolio Position

Business

Competitors

Stock Facts

DCF Analysis

Overall Portfolio Fit

Recommendation

Company FactsCompany Facts

• Headquartered in Santa Clara, California• Macrovision is traded on the Nasdaq National

Market under the symbol MVSN• Market leader in content protection, software

licensing and installation, and digital rights management (DRM) technologies

• Alfred J. AmorosoPresident/Chief Executive Officer – Beforehand Amoroso was president and chief

executive officer at CrossWorlds Software. – Prior to CrossWorlds, Amoroso was general

manager of IBM Global Services Asia Pacific.

Portfolio PositionPortfolio Position

• Bought 200 shares of MVSN at $75 on April 3, 2000

• Since inception it has produced a annual return of: -14%

• Total Loss of: -$9432 which is representing a total return of -63%

• % of Portfolio (market): 2%• Reviewed on March 2006 (Hold)

Company Facts Company Facts (Cont.)(Cont.)

• Market Cap: $1.39 Billion• 2005 Revenue: $203 Million• 2005 Net Income: $23 million • Stock Price: $27.20• Beta: 1.26 (Bloomberg)• 2005 ROE: 5.17%• 100% Equity• Employees : 692 • Financial Year End: December 31st

*Facts from 2005 10-K

IndustryIndustry

• The design, distribution, protection and consumption of all forms of digital content and software

• Content and copyright owners are increasingly vulnerable to unauthorized use of their content

• Annual Loss: $23-$25 billion to the U.S. copyright industries.

• Entertainment & Software distributors and publishers have become more concerned with protecting their intellectual property.

Industry Industry (Cont.)(Cont.)

• Software vendors and systems vendors need simple, scalable solutions for the use of their products

• Seeking ways to package their products in order to reach a larger share of the available market.

• Enterprise customers focused on tools that provide a simple installation, activation and maintenance experience

Core BusinessCore Business

• Entertainment Technologies– Revenues increased $4.4 million or 22.4% from

the third quarter of 2005 – Growth in hardware licensing, e.g. set top box

licensing

• Software Technologies – Revenues increased $7.1 million or 32% from the

third quarter of 2005 – Growth in market penetration and a growing

customer base, as well as a result of the acquisition of eMeta

• Significant seasonality in business

Costs and Expenses Costs and Expenses

• Entertainment Technologies – Replicator fees, Hawkeye service costs,

ActiveMARK service costs and patent related litigation expense

• Software Technologies – Product support costs, direct labor costs of

employees on consulting or training, the cost of patent defense, acquisitions and patent amortization.

• Research and development expenses• Selling and marketing expenses • General and administrative expenses

CustomersCustomers

• Entertainment Producers and Distributors

Motion Picture Studios PPV/VOD System Operators Set Top Box / DVR Manufacturers

• Buena Vista Home Video (Disney)

• British Sky Broadcasting (UK) • Daewoo Electronic

• HBO Home Video • BS Conditional Access Systems (Digital BS Broadcast)

(Japan) • Mitsubishi Electric

• Lions Gate Entertainment • DirecTV (North America) • Motorola Broadband

Music Labels PC Games/Software Publishers Trymedia

• Avex (Japan) • Activision • AOL • EMI • Apple • Atari • Pony Canyon (Japan) • CDV Software Entertainment • BigFish

CustomersCustomers

• Software Publishers

• Enterprise End-Users

• Adobe • IBM • Autodesk • Sybase • Cadence Design Systems • Synopsys • Cisco Systems • UGS PLM Solutions • Citrix • Wind River Systems

• Agilent • IBM • BMW • Lockheed Martin • Boeing • Motorola • Eastman Kodak • Nokia • Ford Motor Company • Philips • Honeywell • Siemens

CompetitionCompetition

• Entertainment Producers and Distributors – Video Technology – No significant

competitor– Music Technology & PC Games Technology

– Compete with Microsoft, Sony, IBM etc.

• Software Publishers – Enterprise End-Users

CompetitorsCompetitors

MVSN MSFT RNWK Industry

Market Cap: 1,450 293,830 1,890 120.98

Price 28.35

Revenue (ttm): 234.48 45,350 353,260 48.49

Gross Margin (ttm): 85.41% 82.16% 70.10% 58.14%

EBITDA (ttm): 73.68 18,780 -23.15 2.47

Oper Margins (ttm): 15.15% 39.38% -14.85% 0.06%

Net Income (ttm): 20.93 12,940 401.55 -93.62

EPS (ttm): 0.399 1.251 2.233 N/A

P/E (ttm): 71.08 23.89 5.25 32.34

PEG (5 yr expected): 1.39 1.49 0.96 1.49

P/S (ttm): 6.35 6.48 5.28 2.5

# Shares 51.25 9,830 161.6

IncomeIncomeNet

RevenuesNet

Income

128,346

203,230182,099

'03 '04 '05

26,941

36,730

22,115

'03 '04 '05

Revenue by DivisionRevenue by Division

Services12%

Licenses88%

Du Pont AnalysisDu Pont Analysis

2001 2002 2003 2004 2005

Equity Multiplier 1.08 1.09 1.12 1.14 1.16

Total Asset Turnover 0.29 0.31 0.33 0.40 0.41

Profit Margin 19.42% 11.82% 20.99% 20.17% 10.88%

ROE 6.03% 4.07% 7.83% 9.22% 5.17%

Stock PerformanceStock Performance

Stocks Price History

020406080

100120

3/3/

00

9/3/

00

3/3/

01

9/3/

01

3/3/

02

9/3/

02

3/3/

03

9/3/

03

3/3/

04

9/3/

04

3/3/

05

9/3/

05

3/3/

06

9/3/

06

Date

Price

Stock Performance (cont.)Stock Performance (cont.)

Modeling and ForecastingModeling and Forecasting

• Discounted Cash Flow• 3 Scenario:

– Base-case– Downside

• Base-case segments’ revenues – 10%• Adjusted Cost of Goods Sold

– Upside• Base-case segments’ revenues + 10%

• Relative Comparable Analysis

DCF AnalysisDCF Analysis

• Assumptions– Beta: 1.26– Risk Free Rate: 4.58%– Market Risk Premium: 6.42%– CAPM: 14.15%– Cost of Debt: 8.25%– Debt/(Debt+ Equity): 0.19%– Equity/(Debt+Equity):

99.81%– WACC

• Calculated: 12.66%• Bloomberg: 11.98%

– Growth Rate: 5%

• DCF Value per share:– Calculated WACC:

• Base: $28.95• Downside: $24.21• Upside: $35.70

– Bloomberg WACC• Base: $32.33• Downside: $27.03• Upside: $39.89

Relative Comparable AnalysisRelative Comparable Analysis

• Comparison Companies: – Microsoft– Real Network

Average Multiples MVSN Ratio Price

Average P/E 14.57 Earning 0.40 5.81

Average PEG 1.225Earning (G) 51.14 62.64

Average P/S 5.88 Sales 4.46 26.25

Sensitivity AnalysisSensitivity Analysis

11.98% 12.50% 12.66% 13.50% 14.00%4.0% 25.64 24.01 23.55 21.38 20.264.5% 26.98 25.16 24.65 22.26 21.045.0% 28.51 26.47 25.89 23.25 21.915.5% 30.27 27.96 27.31 24.36 22.886.0% 32.33 29.68 28.95 25.62 23.97

WACC

Gro

wth

Rat

e

Sensitivity Analysis

Correlation MatrixCorrelation Matrix

AEE AEOS CPRT FR JKHY JPM KMB MVSN MS SRCL SRZ WAG PortfolioAEE 1.000AEOS 0.260 1.000CPRT 0.319 0.150 1.000FR 0.452 0.249 0.427 1.000JKHY 0.174 0.128 0.331 0.247 1.000JPM 0.343 0.271 0.357 0.414 0.306 1.000KMB 0.213 0.085 0.344 0.277 0.148 0.245 1.000MVSN -0.020 0.092 0.169 0.199 0.208 0.214 0.087 1.000MS 0.188 0.148 0.268 0.356 0.371 0.588 0.228 0.282 1.000SRCL 0.099 0.118 0.052 0.196 0.272 0.220 0.084 0.038 0.181 1.000SRZ 0.180 0.008 0.104 0.131 0.213 0.096 0.104 0.083 0.153 0.176 1.000WAG 0.159 0.206 0.198 0.193 0.247 0.148 0.175 -0.118 0.140 0.246 0.030 1.000Portfolio 0.457 0.570 0.552 0.578 0.548 0.579 0.369 0.420 0.547 0.390 0.529 0.334 1.000

RecommendationRecommendation

• Hold– Reason:

• The current price of $27.84 is still between the range of $23 - $35

• Nature of the business – still growing• Negative Correlation with some of the holdings