Gemstar’s stock slide continues

Co. plans to reposition TV Guide, refocus on subs

This article was updated on May 10, 2004.

Shares of Gemstar TV Guide continued their free fall Friday, two days after the listings publisher and TV channel unexpectedly slashed its 2004 earnings forecast in light of a continued sales bleed at its flagship mag and skyrocketing legal expenses.

Stock closed Friday at $4.44, having lost nearly 22% of its value since the company disclosed its first-quarter 2004 results Wednesday.

Potentially disturbing for investors is the fact that CEO Jeff Shell has been steadily exercising and selling options to the tune of more than $3 million since Februrary. Such insider selling, though legal, is a bit conspicuous given Gemstar’s recent earnings re-forecasting, sources said.

Some 32 million shares were traded Thursday alone as shareholders rushed to dump stock after Shell shocked Wall Street by cutting the company’s operating income forecast for 2004 by $20 million-$40 million. Company said it now expects earnings to come in anywhere between $60 million and $90 million for 2004.

News Corp. owns 44% of Gemstar TV Guide.

The health of TV Guide is investors’ primary concern at the moment. Company is making a concerted effort to reposition the listings guide and refocus on subscriptions. Circulation is holding at 9 million but newsstand volume was down more than 20% in the last quarter. That decline erased any gain from a recent price increase to $2.49 from $1.99. Company said it would continue investing in the magazine editorial and subscriber acquisition.

Editor Mike Lafavore exited last week while the company undertakes a search for a new editorial chief who may be able to kickstart the ailing mag. TV Guide is said to be sounding out the possibility of bringing former ABC TV exec Susan Lyne into the fold. Company refused to comment.

The combination of the steep earnings revision and a weak first-quarter financial showing is sowing serious concerns on the Street, as banks such as Blaylock & Partners cut its rating on the stock. Blaylock analyst Todd Mitchell, who reduced his price target from $12 to $7, said Gemstar management has lost credibility with its revisions.

The legal bills are also a concern, as Gemstar is obliged to foot the bill for its former executives’ litigation. Company said it spent $19 million on legal costs in the first quarter, while sources indicated the full-year 2004 tally could reach $75 million in legal battles with the Securities and Exchange Commission, patent litigation and class-action suits related to previous management and former chief exec Henry Yuen.