Hi Dave-
Thanks for the great feedback.
<..TLC is well positioned for Christmas with it's launch of new titles rolling out and the broderbund is back campaign...>
The way I see it, there are a LOT of sub-$1000 computers that will be bought this Christmas (especially with the attention the internet has gotten the last 6 months). And likely many of those will buy (or be given as corollary gifts) at least one game - with a good chance it will be a TLC game.
<..The stock trades at a significant discount to it's intrinsic worth for many reasons...>
What metric do you use as the best gauge of intrinsic worth?
And did you by chance click on my last "chart" link? It was a fundamental comparison chart showing several "competitors" (though really just a smattering of various software companies). Besides ERTS, BMCS, and CD, who do you regard as the primary publicly traded TLC competitors? Do you consider CA a competitor?
<..and has been predicting disappointing financial results since the beginning of time...>
In the course of due diligence, I like hearing pros and cons, but DO tend to put a bit more faith in the fact that 13 top research firms have given TLC their strongest buy ratings (occasional OXHPs notwithstanding - though *I* would be hesitant to dismiss an earning's shortfall, and certainly any PATTERN of shortfall.)
<..has made numerous accretive acquisitions, become the gorilla in the market and met or exceeded projections every quarter...>
With a better than modeled Christmas (which I understand are currently on the conservative side) I suspect we could see better than .53 in Jan.
<..I don't think the investment community is remotely aware of how
successful the launch of shoptlc.com has been..>
This is a sweet kicker for me. I've made some good money trading some of these, and bubble or not, the internet is set to explode into next year. I bet that after this Christmas, the web sees an explosion of new eyeballs and wallets.
<..but I'm not paying much attention to them since they only indicate stock direction without some form of an external catalyst..>
I typically don't make an investment or trading decision on them, but like to buy smart - and also believe "the street" is usually smarter than any individual. So I DO tend to "read the tape". Today's close above the 13d EMA was a very bullish sign. I was also intrigued last week with the open call interest for Dec and Jan - several thousand (representing several hundred thousand shares) that expect the stock to close above 30 or 35 (for *whatever* reason). I also like the short squeeze potential with a low volume issue. Owners tend to buy and hold - and with ~50% institutional ownership, IMO this forms a solid but not too heavy base for further upside.
<..there are plenty of characters and content that would make attractive partnership and licensing deals...>
Do you consider ERTS, BCMS or CD possible (or desirable) TLC acquisitions?
<..I think that numerous media, computer and internet companies would find significant value in TLC's franchises..>
Excellent point. ANY content provider is interested in digital content - as the more bandwidth bountiful future will be about internet distribution. So perhaps an internet partnership like Yahoo or AOL?
<...given the normal takeover premiums of 30% to 60% over trailing 20 day stock price, I'm not sure I'd jump up and down with excitement over a takeover at this point...>
I can see this, but with insiders controlling better than 75% of the UNDILUTED S/O (too lazy to go check the 10Q - do you know the number of current fully diluted shares?) , I suspect they would act in the BEST interest of shareholders in any buyout considerations.
Thanks for sharing your studied opinions, Dave.
Fwiw, here are some excerpts of BTAB's TLC report of 11/11/98 (I'll post others as I have time to OCR):
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BEST POSITIONED FOR MASS MARKET PC GROWTH and more positive 4Q outlook based on news from Intel, and expectation for $599 PCs for the holiday season. TLC has the largest market share of the most mass appeal categories in software--education, productivity and reference.
MEETINGS WITH MANAGEMENT REVEAL GREATER CONFIDENCE -- PC DATA ANALYSIS
CONFIRMS BULLISHNESS. October market share has increased in several categories from the C3Q -- education market share up 5% to 44% from 39%, productivity market share up 5% to 43% from 38%, and reference market share up 2% to 44% from 42%. INTERNET POTENTIAL EMERGES with 2.1 million unique visitors and roughly 50 million page views per month across the Company's Web sites (more than Intuit).
TIME FOR A NEW LOOK
TLC is now the largest consumer software company, has shifted to a quality of earnings story, demonstrated strong internal growth and has incremental accretive consolidation opportunities (titles, brands, talent and companies).
REITERATE STRONG BUY RATING and our 12 month price target of $41 is based on 22x our CY 1999 EPS estimate of $1.85.
DETAILS:
BEST POSITIONED FOR MASS MARKET PC GROWTH
The Learning Company (TLC) is the number one beneficiary of strong expected home PC sales, now incrementally more positive based on news from Intel, and expectation for $599 PCs for the holiday season. In 4Q 1998, PC unit sales are expected to be up 13%-15% Y/Y (according to our PC analysts), higher than our earlier expectation of 5-8%. TLC has the largest market share of the most mass appeal categories in software--education, productivity and reference.
MEETINGS WITH MANAGEMENT REVEAL GREATER CONFIDENCE -- PC DATA ANALYSIS
CONFIRMS BULLISHNESS
We were with Company management yesterday and their bullishness was evident. Extrapolated PC Data weekly reports for October reveal that TLC October market share has increased in several categories from the C3Q -- education market share up 5% to 44% from 39%, productivity market share up 5% to 43% from 38%, and reference market share up 2% to 44% from 42%. (Entertainment market share decreased during the month, down 1% to 6% from 7%.) Note that the weekly PC Data information represents a sample of total retail sales and is best used
as an indicator of share trends and not as a reliable measure of growth.
INTERNET POTENTIAL EMERGES
Internet potential is emerging with 2.1 million unique visitors and roughly 50 million page views per month across the Company's Web sites, the #1 traffic site is familytree.com with over 800,000 unique visitors. This bodes well for the future as Investors focus on eye-share and Internet strategy matures. Note that unique visitors to TLC sites are greater than Intuit and only slightly less than barnsandnoble.com. We are becoming increasing confidant that TLC
can emerge as the leading educational and productivity destination and on-line community with its best-of-breed brand portfolio (most are affinity group related) and strong unit sales (over 40mm units per year).
TIME FOR A NEW LOOK
We believe TLC warrants a fresh look from investors as both the industry and the Company have improved greatly. TLC is now the largest consumer software company (with the number two position in software at retail behind Microsoft).
The Company has
-- shifted to a quality of earnings story (debt less than cash, all
amortization in income statement),
-- demonstrated strong internal growth (top 15 brands up 51% Y/Y YTD,
conservatively expect 15-20% growth plus accusations) and
-- incremental accretive consolidation opportunities (titles, brands, talent and companies).
REITERATE STRONG BUY RATING
We reiterate our "strong buy" rating on the stock. Our 12 month price
target of $41 is based on 22x our CY 1999 EPS estimate of $1.85. Note that EPS growth is 40% Y/Y for 1999 (historicals lowered from Broderbund pooling dilution).
A 25-30x multiple may be more appropriate given the Company's leadership position and improving trajectory.
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