You are correct. The good thing is, though, unlike Pixar, the episodic TV shows bring in nice stable business, build up library, and have increasing margins becuase costs drop dramatically after the first season or two. Not knowing if there will be future seasons, they have to write-off all development expenses (purchase of equipment, original modeling etc...) over each episode. If they get 2,3,4,5th seasons, while there is some incremental expense to new modeling and possibly new equipment (depending on the backlog) it is not as high as in the first few seasons.
So, for instance, now I think they are mainly working on REBoot3. All the equipment and production suites have been purchased and expensed in the past. They must be doing some work on the third series, Closing Time, but it's probably script writting and modeling. Once Reboot's done, they'll probably shift into BW2, Closing Time and start modeling and writing MDK for next year. All along, international rights will be sold (reboot's in 50-60 countries, but BW isn't), merchandising will kick in etc... So there should be a good underlying trend within the business. For instance, the EA royalties for the Reboot game are 100% pure profit and will just start accruing over the next year or two. Who knows what other projects they'll get, but they've certainly started off with a bang in the last twelve months. They will probably end some series and start new ones, but if you can get up to 5-6 series you're talking a pretty darn good underlying business.
Any movie(s) is pure upside and will create a huge hump in revs and income the year its delivered. But MFE's stated policy is to own a piece (royalty, dist rights etcc..) of everything they work on. If they don't, it's becuase they're probably building in a nice upfront production profit. Those residuals (video, game, merchansdise, int'l rights....) are 100% profit and kick in over a 2-3 year period. Toy Story's support Pixar's financials for two years now. If MFE, who can work more quickly and more efficiently, can't get another movie within a two year period, there will be a hump. But I would imagine the business proposition to H-wood is just to great to pass up. MFE significantly enhances the chance for a movie to be profitable given their efficiency via proprietary software, hustle, and quantum experience over the competition (who spend time doing low-profit special effects and commercials). These guys are a factory --producing more CGI than the whole industry combined. Admitedly, it may not be to the same scale of detail etc..., but they've proven the process and their skill. That's not to say someone else might, buy H-wood likes a proven commodity --they have to moderate the risks in a very high risk business.
So I would imagine MFE will be able to grow and take on 2,3,4 movies at a time at some point in the future if demand warrants it. They could certainly do the TV stuff and a few movies with little problem. Remember, a movie is only 70-80 minutes of animation (okay its much higher rez, so it's 3-4x the TV equivalent), and they did over 500 minutes last year and are scheduled for 900+ this year!
I'm surprised the market didn't pick-up given the 25% boost to revenues in the next 18 months. Remember, their Fy is March, so they are already in the 98 year. 99 is just next year for them. I think it's still unfollowed, until a few more analysts pick it up and write on it, people will just wait. As for who traded, I don't know, but the broker attached to it was First Marathon so it was either someone in the IPO or special warrants. But for every seller there's a buyer, so someone understands it. |
