About two weeks after the U.S. launch of the Pokemon Game Boy, a Nintendo press release
declared "the Pokemon video game for the Nintendo Game Boy video game system has
become the fastest-selling portable game in American history." Given the Game Boy's huge
success, IMO there's a decent chance U.S. sales of Pokemon merchandise will match their
phenomenal performance in Japan. Making this assumption, I decided to have some fun (I
know I'm a little weird) and do a spreadsheet model of KIDE's 1999 EPS.
Based on the assumptions below, I came up with an estimate for KIDE's 1999 diluted EPS of
about $3.50! I realize this number sounds phenomenal and I'd much appreciate any comments
on the reasonableness of the assumptions I used and my earnings estimate.
Here are my assumptions (my notes are pretty long, so please bear with me):
1) Pokemon merchandise retail revenues for 1999: $2.67 billion
(In Japan, Pokemon merchandise produced $4 billion in revenues over 18 months. I
annualized the $4 billion to get $2.67 billion. Based on population, the World market,
excluding Asia, should be at least twice Japan's. So using the Japanese revenue figure seems
reasonable.)
2) Pokemon merchandise wholesale revenues for 1999: $1.33 billion
(I got this number by assuming a 100% wholesale to retail merchandise markup.)
3) KIDE net Pokemon royalty: 2.6%
(In its most recent 10K, KIDE gives a range of 4%-12% as a typical product owner's
licensing royalty and a range of 15%-50% for Kide's cut of the owner's take. I used the mid-range
percentages of 8% and 32.5% to get my 2.6% estimate.)
4) KIDE Pokemon revenues: $34.7 million
(This is 2.6% of $1.33 billion.)
5) KIDE non-Pokemon Revenues: $10.1 million
(This was KIDE's 1997 total revenues.)
6) Total 1999 KIDE revenues: $44.8 million
(Simply the sum of 4 & 5 above.)
7) 1998 After-tax Margin: 22.3%
(I got this number by using 1998 estimates for KIDE of $13 million in total revenues, an EPS
of $.75 and diluted shares outstanding of 3.85 million. KIDE's revenues were $7.36 million
for 1998's first nine months. Revenues for 1997's fourth quarter were $7 million, which
included an unusually large one-time license fee, so a bit under $6 million in revenues for
1998's fourth quarter seems reasonable as the Pokemon revenue surge won't really show up
until 1999. The $.75 EPS estimate seems reasonable based on the CEO's statement that
KIDE's 1998 EPS would exceed $.70. The 3.85 million diluted share number was used by
KIDE to compute its 1998 3rd quarter diluted EPS. Based on these estimates, KIDE's 1998
after-tax net income would be $2.9 million, which on $13 million in revenues results in a
22.3% after-tax margin.)
8) 1999 After-tax margin: 30%
(I figured that if KIDE seems likely to achieve a 22.3% after-tax margin on $13 million in
revenues, they could easily do 30% on $44.8 million in revenues.)
9) 1999 KIDE estimated after-tax Net Income: $13.44 million
(Total revenues of $44.8 multiplied by the .30 after-tax margin.)
10) 1999 KIDE Estimated After-tax diluted EPS: $3.49
(Net Income of $13.44 million divided by 3.85 million in diluted shares.) |
