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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (1579)	6/9/1999 1:19:00 AM
From: James Clarke	Read Replies (1) \| Respond to of 4691

OK, one last post on Barbie. Let me put this argument out in its original form, and then I am going to trash it. This is an analysis the WSJ editor should have done before making the decision to publish this article with no perspective. I dispute no facts in the WSJ article. <<Barbie may be fine with the kids, but if the WSJ article is to be believed its the _adult_ collectors who are abandoning the product. Unfortunately I don't have the article to confirm the revenue figures, but estimate revenues MAT recieves on 2 to 3 million units of Holiday Barbie (probably @ $39 retail). Apparently collectors no longer want this doll, and collectors were behind much of the demand for the product.>> Barbie did over $1.5 billion (with a B) of sales last year. Mattel as a whole did $4.8 billion. And that was a bad year. The product the Wall Street Journal focused on was as you say 2 or 3 million dolls at $39 retail, probably $20 to Mattel. That's $40-60 million! Out of $4.8 billion. And lets say collectors bought 50% of that line (I don't think the number is anywhere close to that). That's about $25 million, or one half of one percent of Mattel's sales. We've got a forest here, but we're looking at one tree. And after double checking my analysis I do not at all agree with Mike's characterization of the numbers. I'll take his excuse and say its late at night and I've got to get some sleep, but this is no 8% ROE company. Its more like 30%. I'll elaborate when I get some time. But for now just take 1998, a bad year. For Mattel without the TLC acquisition, ROE was about 16%. Most of equity is goodwill amortization from the Tyco acquisition, so return on tangible assets is far far higher. In a bad year, Mattel had free cash flow of about $300 million. Now we fold this together with a software company. TLC's financials are very very difficult to analyze because of the acquisition history, but use your head. Software return on equity is typically off the charts. Once you cut through all the acquisition accounting, ROE and free cash flow is the last of your problems here. What I worry about is that they overpaid for TLC. But even if they did overpay some, Mattel is still a buy in my book below 27. Though I do not disagree with Mike that the price MAY get back to its low of 21. See, Mike and I sometimes do disagree. JJC