Sorry to have to break my post in two parts. I’m a slow typist.
Back to my four points. Prior to yesterday’s gain, the stock traded between 12.25 and 13.75 for about seven weeks. At the risk of sounding like a technician (which I’m not), it really looks like it has built a base. As an aside, please note that Fidelity initiated a 97,000 share position last quarter at higher than current prices. They are usually good at bottom fishing.
I have three reasons for believing that PIXR will accelerate release of the second film into the end of 1997. The first is that they have substantially added to staff. According to the July 26, 1996 Contra Costa Times, PIXR has 225 employees and expects to have 350 by the middle of next year. This compares to 140 at September 30, 1995 (see page 46 of the prospectus).
The second reason I think the rlease will accelerate is that they discontinued television commercial production. This will free up about 17 people to work on the next film.
My final reason is based on my offer incorrect instincts. Revenues from Toy Story will virtually end in early 1998. Without an early release of the next movie, PIXR will be in the undesirable position of having little operating revenue and profit for 1998 (assuming a December release of the next movie).
I have no direct evidence to support the next point. That is my belief that Disney will renegotiate the feature film agreement. In fact, Steve Jobs is quoted in the July 26, 1996 San Jose Mercury News as saying that the agreement is more than fair. I believe that it will be renegotiated because PIXR’s success is very important to Disney. To understand how important, you should read the January 2, 1996 research report by Hambrect & Quist. Its available from the InfoTrac Investext database at many public libraries. The report does an extraordinarily good job of describing the economics of animated films. It says that over the last three years approximately 50% of Disney’s consolidated profits have been derived from its animation properties. So, if the next film looks like a winner, Disney has a lot at stake in keeping PIXR happy. Remember PIXR is free after movie number 3 (FREE IN THREE).
My final point is that if all of the above is wrong, there should be a floor (I hope) on the price of the stock because if it goes too low, it provides Steve Jobs with an opportunity to make a substantial profit by buying back the public shares. For example, if he tendered for the stock at $18/share, he would pocket about $15 MM off of the IPO. Also if the second film appears to be a winner, Disney may wish to own our shares.
I would like to make one final observation. I called the analyst at Hambrect & Quist and ask whether the people at PIXR struck her as extraordinarily talented people. She said that, in her opinion, they were. This is really the important question that will be answered in about five years.
Good Luck |
