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Deals Put DGIT on the Fast Track

9/14/2007 8:00 PM Eastern

Oppenheimer & Co. media analyst Tom Eagan increased his 12-month price target on DG FastChannel (DGIT) to $27 per share from $21.50, adding that the video-technology company’s recent acquisitions and partnerships affirm its strategy of consolidating its competition.

DG FastChannel has made at least three acquisitions since April — GTN, a distributor of high- and standard-definition commercials; Pathfire, a third-party distributor of long-form content, mainly news and syndicated programming; and the advertising distribution business of Point.360. Eagan wrote that in addition to the market share gains those transactions bring, DG also is benefiting from two digital trends: the migration from physical to electronic delivery of advertising and the adoption of HDTV.

Eagan wrote that because of those two trends, he expects video gross margins to increase from 58% in 2007 to 65% in 2008.

Eagan added that one of the company’s smallest deals — its $4.3 million investment in Viewpoint, an Internet marketing-technology and ad-serving company, could end up being one of its most lucrative.

As part of that equity investment, DGIT entered into a partnership to use Viewpoint’s Unicast technology, which enables publishers and advertisers to deploy and manage rich-media advertising campaigns on the Internet.

Eagan estimated that DGIT could generate an incremental $12 million in cash flow over the next three years from the partnership alone.

September