ONTV/RONCO *PLEASE READ* The issue of commission.
I think one of the best criticisms of ONTV's critics is the issue of just how much commissions there will be. I think this is a valid concern, one that troubles me as well. I'm going to repeat some of the items from a previous post, but let's just plug some numbers in. According to the MSN interview:
communities.msn.com
RONCO ramped up their production of rotisserie grills to 20,000 units as of last November. Popeil claims they will net 2 million a week, so roughly $100 margin per unit...very high margin items indeed. Anyway, they sell for 159.00 at 20,000 units so that's 3.18 million a week or $165,000,000 a year gross sales. Let's just assume that their other products combined sell roughly the same amount. So we arrive at a sales figure of $330,000,000.
Now currently their internet sales potential is probably only a fraction of this amount -say 10%-20%. That's still 33-66 million dollars. From which ONTV may recieve 5-15% commissions which gives us a range of 1.6 million (33million sales and 5% commission) to 9.9 million at the high end (66million at 15%). Split the figure down the middle and we come up with rougly $5 million dollars.
That's not a bad start for any company. Especially one trading at a dollar a share right now. But then you have to figure that more and more sales will be processed through the internet. Popeil can significantly cut down the number of operators standing by and cut down paperwork. Also remember from my previous posting that the infomercial landscape has changed because of cable TV, so it is no longer cost effective for Popeil to rely heavily on that format to generate his sales. Let's say in 3 years, RONCO grows 10% a year, which gives him giving him $439,000,000 in sales. The convergence of TV and internet allows him to process 40% of his sales through the internet. So now the sales processed by ONTV is $175,000,000. For simplicity sakes, let's just add 8% commission to this figure. That equals $14 million. Again that's not a bad figure, since they probably have low overhead--most of this will be net profit. With 25million shares outstanding, this is $.56 earnings a share. Take some off if you feel ONTV's costs would significantly cut into this figure.
The numbers I've plugged in are quite arbitrary, but I think somewhat realistic. I think we are dealing with a company that can potentially process anywhere from 100m to 200m sales a year in the near term. Even a meager 2% commission of that would still be in the 2-4 million. But you also have to remember that ONTV sells more than just RONCO products. They have some of the most popular items on TV at a discount. I have no idea who much they make from their other products. But you have to figure at least another 2-4 million. This can only add to their revenues from the RONCO deal.
What I see here is a company that is not in danger of going bankrupt anytime soon. Who know, eventually ALL of RONCO's sales may be processed by ONTV. Why not? Other retailers do it cause it's cost effective. RONCO can do the same. Then you really have a potential cash cow on our hands. ONTV may only be a flea on an elephant, but it's an elephant capable of generating sales in the 100,000,000 millions, perhaps 1/2 a billion dollars if their sales keep increasing.
I would invite comments by critics to view the numbers I've thrown out and point out problems in my calculations. I'm not an accountant by any means, so I would appreciate any input. I'm interested in making money ONTV, but I too would like to get a better idea of what my investment may mean. |
