Reviewing CryptoLogic's Earnings and Call

5/7/2009 4:26 PM EDT

CryptoLogic (CRYP), an online gaming software provider, announced earnings last night that topped estimates by 5 cents a share, although they missed the top line revenue estimate. For the first time in several quarters, they stopped draining cash at an alarming pace due to cost cuts which should continue to play out for the rest of the year -- ending the quarter with $38 million in cash.

CRYP investors weren't happy, and cut the shares by 19% in today's trading.

I listened to the earnings call this morning and was impressed that the company has cut back on its large costs in response to the drop in revenues they've seen in the last year as they moved to more of a licensing model. The company has no debt and, a few quarters ago, it looked like it was trading below its cash. That was deceiving because they were seeing that cash drop an an unsustainable rate.

Thankfully, that has changed and they now expect to be profitable by the month of June and moving forward. So, you have a company with a $6.37 stock price and $2.80 of that made up of cash with no debt.

The CEO and CFO were a little cryptic on the call about the specific numbers they would put out over the course of the rest of the year. They kept repeating that the results would be in line with previous guidance. I think the lack of clarity led to a sell-off in the stock.

But here's what they did say. They would generate between $0.65 - $0.71 in EPS for the year. (This would be a big jump in growth, as the current quarter saw an EPS loss of $0.10.) With 13.8 million shares outstanding, and the previous cash balances mentioned, that means CRYP -- at its closing price today -- trades at 4.8x current year's projected earnings (excluding cash).

If the management can truly deliver the revenues and earnings to hit this guidance, the stock is cheap.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider CRYP to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Position: Long CRYP.

Originally published in RealMoney.com

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CryptoLogic (CRYP) Rising Ahead of Thursday's Earnings

CryptoLogic (CRYP) is a provider of software to online poker and other gaming sites. It comes out with its latest quarterly earnings on Thursday morning before the markets open.

The stock has been pummeled in the last year, down from $22/share to $7.65 today. It has consistently disappointed with earnings and has seen its one-time significant cash reserve droop from $75MM last spring to $36MM at the end of December.

The company has been signing deals to provide its software to several online sites in the last few months -- a key part of its strategy to get back to profitability. The company's current management was under fire from the former CEO who, a few months ago, was trying to force some turnover in the executive ranks based on the poor stock performance. That threat now appears to have gone away.

Investors are bidding up the shares of CRYP, which are up 16% today, expecting more good news on Friday. You can expect the stock to go higher still -- in a manner similar to what we've witnessed in Crocs (CROX) over the last 2 days.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider CRYP to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Position: None.

Originally published in RealMoney.com on 5/5/2009 2:44 PM EDT

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