3DFX Message Board - Msg: 9392009

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Technology Stocks : 3DFX

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To: Tae Spam Kim who wrote (12326)	5/7/1999 3:02:00 PM
From: Patrick Grinsell	Read Replies (3) of 16960

Why the add campaign is a dumb idea... No question the commercials are good. The real question is are they worth it? The new marketing strategy costs them (3dfx/STB) 83 cents per share that would otherwise be earnings. My short and sweet opinion is it sucks. The marketing campaign is essentially aimed at the retail market. 3dfx already owns 73% of the performance market here so any returns are marginal. Lets do some math. 3dfx made 200 million last year with a profit margin of 11% for 22 million in income. Assuming now that 3dfx did the campaign last year and went from 73% to 100% of the performance retail market. Now let's adjust last year's revenue by the same percentage amount. We now have 274 million in revenue which equates to 30 million in income. But wait, we haven't subtracted the twenty million for the new campaign! Here's the end result... 3dfx 1998 earnings without add campaign: $1.36 3dfx 1998 with wildly successful add campaign: $.63 Of course this all assumes a 3dfx-only scenario, but I'm not convinced that the increased revenue for 3dfx/STB will make the situation any better. If we assume that 3dfx/STB will have a profit margin of 10% before factoring in the add campaign, 3dfx/STB will need to do an additional 200 million in revenue to make up for it. And that is just to break even! Pat

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