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Electronics Boutique Hldg (ELBO) Message Board

  • avacenna avacenna Jan 23, 2000 12:16 PM Flag

    To summarize the situation . . . .

    . . . . here are all the concerns that have been
    mentioned in recent weeks. Several of them are clearly
    linked to pressure on Elbo (e.g., the plunges when Funco
    cratered and when EB UK's problems were publicized).
    Others can't be proved, but it just makes sense that at
    least a small percentage of Elbo holders will finally
    pull the trigger and sell due to some unease with one
    or more of the following.

    I would guess that
    a certain percentage of the selling pressure - it
    might be 20% or it might be 1% -- has been related to
    each and every one of these issues (in no particular
    order):

    - The dumping following the Funco debacle.
    - The
    sell-off in Elbo every time EB UK gets bad press.
    -
    Concern over Elbo's business model given the problems
    with competition & margins at EB UK.
    - The slowing
    in the growth rate of SSS.
    - Concerns about
    slower demand for Nintendo & Playstations.
    - Pressure
    on other game stocks (Kide, Hasbro, Midway, et
    al).
    - Emergence of doubt over the staying power of
    Pokemon which is an Elbo profit center.
    - The market
    having to digest millions of shares of Elbo
    secondary.
    - Uncertainties over growing Web advertising costs
    on bottom line.

    The cumulative effect has
    totally overwhelmed the buy-side support.

    I think
    the market will work through each one of these in the
    next few months and put it behind (with the possible
    exception of slowing growth in SSS). Even the SSS issue
    should fade somewhat if Elbo keeps growing the top
    line.

    As the date approaches that Playstation 2 is to come
    on-stream, the situation will reverse and all the excitement
    and focus will be on this blockbuster introduction --
    and I can promise that, considering EB's track
    record, they will be front-stage and center. And if
    Nintendo is delayed and doesn't reach market until 6
    months after Playstation, so much the better. They won't
    be competing with each other for media coverage and
    hype.

    This stock is one to buy cheap and put away. Time is
    on our side.

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    • Covered most of the bases on recent pressure, and
      with the exception of ELBO's consistent inability to
      issure press releases, even just fluff about their
      industry (not elbo specific for compeitive reasons), will
      continue to have a negative impact. The market always sees
      no news as bad news.

      I've added some thoughts
      to your comments:

      - The dumping following the
      Funco debacle. ((FNCO is ElBO's only like for like
      publically traded competitor, although if you look at their
      filings, they sort of aren't in the same markets. FNCO
      operates strip centers (lower traffic) and sells much more
      used games, with higher margins. As I recall, FNCO has
      margins in the 34% range, well above ELBO's 25%. They
      also do not sell PC games in the majority of their
      stores, which is the "other" half of the
      industry.))

      - The sell-off in Elbo every time EB UK gets bad
      press. ((Too true!! When will the markets realize
      Electronics Boutique (UK) is NOT Electronics Boutique (USA),
      although I can understand the ease of confusion. UK is a
      much different market than the US, and I believe they
      have much higher margins there, where games sell for
      50 pounds but price adjusted, only sell for 30
      pounds here in te US. Even at a higher wholesale cost,
      they surely have better margins. Competition will of
      course erode those margins.))

      - Concern over
      Elbo's business model given the problems with
      competition & margins at EB UK. ((Not an issue. very
      different market, and consider EB UK is 25% of the market,
      whereas ELBO must be 5% or less! firestone said in a
      radio wallstreet interview once that ELBO is 7 or 8 in
      terms of volume for games in the us, and that's their
      core business! Looks like great room for
      growth!))

      - The slowing in the growth rate of SSS. ((natural
      occurance as ELBO runs out of great malls to put stores in
      and has to resort to omly putting stores in so-so
      malls. We might see this erode further for the EB
      concept. I guess that's why they're trying new retail
      ideas, like EBKIDS and their sports stores.))

      -
      Concerns about slower demand for Nintendo & Playstations.
      ((Slower unit demand for systems hurts sales, but helps
      margins. Margins on machines are less than 5%, game
      margins are much higher. Also, look at the huge installed
      user base for these machines. That base creates a
      consistent demand for games and if ELBO can increase market
      share, well, you know the store.))

      • 1 Reply to balsac57
      • - Pressure on other game stocks (Kide, Hasbro,
        Midway, et al).((I think this must be the biggest and
        most logical of the reasons mentioned. Look, if all
        these game companies (eidos, midway, hasbro) say their
        last quarter sucked, that means sales were down, so it
        makes sense to believe ELBO had a soft christmas.
        Unfortuinately, that must be incorrect because of the press
        release ELBO put out in early january stating things were
        great.))

        - Emergence of doubt over the staying power of
        Pokemon which is an Elbo profit center. ((True, but ELBO
        was never known as a POKEMON stock, even though Harry
        Katica stated in several reports that pokemon has saved
        several quarters for elbo. If elbo was known as a pokemon
        stock by the market, we'd be well over 100 at this
        point. About the future from the loss of pokemon, ELBO
        seems to be good at picking up on trends. They
        capitallized on the furby craze in 1998, and I remember buying
        several tamigochi (remember those!) in 1996 from
        elbo))

        - The market having to digest millions of shares of
        Elbo secondary. ((True, but a long term positive from
        the increased float and reduced insider
        ownership))

        - Uncertainties over growing Web advertising costs
        on bottom line. ((UGH!! Anyone seen all the
        advertising they did this winter...they got lost amongst all
        the other dot com ads. Where I am, they had radio, tv
        and print ads and they're not cheap. and with sales
        of only $16 mil and razor thin margins and an
        expanding fulfillment and suppport network, this seems like
        it may be a money pit for the company. How many
        games can you sell online? $100 mil? A billion? I doubt
        it. I don't see it as a long term growth area and I
        hope they don't waste too much on that turkey. Leave
        the bit time up to the big boys, loke AMZN (which I
        don't own, BTW))

        Thanks for listening to my
        ramblings!! (bought more at $14, although still under water!
        Luck to all!

    • I would also emphasize the bad news on Eidos
      and Acclaim in your list.

    • That was a very good summary of the
      negative
      pressures on ELBO currently.
      There is one more log on
      the fire that
      needs to be added.

      As has
      been pointed out here already
      both Pru and SSB have
      been out with
      updated reports. Both have $30+
      targets
      and both are bullish throughout 90%
      of their
      text.

      However I think most of us that have
      followed
      this stock for while took
      some degree of relief
      that the "clicks"
      part of the bricks business was
      accretive
      to earnings. Now this trend has taken a
      turn for
      the worse. A path followed by
      many a predecessor.
      The most obvious that
      comes to mind is the book
      stores. For
      instance in the new SSB report it
      breaks
      down the internet portion of the business.
      It
      states in FY99 the web added .03 to EPS
      numbers. This
      new report which I believe
      may be responsible for
      the plunge though the
      FNCO warning low states a
      loss for the web
      portion to the tune of (.24) in
      the 4th qtr
      and (.30) for FY 2000. Now I'm all for
      building
      the business but not to the detriment of
      the
      ongoing operations.

      That having been said, I
      still maintain this stock
      is a buy 13-14. I think
      this stock is a double if
      not tipple by Christmas
      2000. Just as with my
      FFD when the last bull on the
      stock is threatening
      to sell thats the time to load
      up. I did so with FFD
      at 9 3/8 and told others to
      maintain faith in what
      you believe in. I'm telling you
      now (Again) ELBO
      can be at $36 by Christmas
      !!!!

      Best wishes to all ELBO longs,
      ILive2PlayStocks

      • 1 Reply to ilive2playstocks
      • I understand what you're saying about the Web
        unit going from .03 eps in FY 1999 to -.30 in FY 2000.
        In recognition of that fact, my final bullet was,
        "Uncertainties over growing Web advertising costs on bottom
        line." The actual situation is unclear.

        Although
        I have not seen where EB has specifically spelled
        out what portion of the Web expenses are being spent
        where, I'm under the impression that the "loss" is
        primarily advertising. This is based on their 3rdQ earnings
        release which says, "We have indicated that during fiscal
        2000, we intend to spend approximately $12 million
        towards branding our e-commerce business." They are just
        now finishing their FY 2000, and "branding our
        e-commerce business" I interpret to mean advertising,
        promotion, etc. Firestone also says in that paragraph about
        the Web business, "EPS [for the 3rdQ2000] was
        negatively impacted by $0.06 per share due to advertising
        and promotional expenses primarily associated with
        our new marketing campaign." He then adds, "We do not
        anticipate earnings to be negatively impacted in fiscal 2001
        by the continuation of this campaign." FY 2001
        starts in 7 days, on February 1. Salomon Smith Barney
        projects .00 eps impact for the Web unit in FY 2001,
        following .03 in 1999 and -.30 in 2000.

        I look at
        advertising expenses as something that can be eliminated
        rather quickly to assure that earnings targets are met
        -- a one quarter lag at most. Given that EB actually
        earned .03 eps on the Web unit in FY 1999, I assume that
        it could be profitable now but that they are plowing
        the profits right back into building market share and
        expanding awareness of their e-commerce
        unit.

        Interestingly enough, SSB says about the Web unit, "All losses
        from the Internet initiative are excluded from our EPS
        estimates, which is consistent with Street consensus for
        ELBO." So I was somewhat surprised that everyone seems
        to be excluding the Web unit impact on eps
        anyway.

        I'm not too concerned about the Web unit bottom line
        because I think they're deliberately reinvesting any Web
        profits (at least I hope they have profits) -- plus .30
        per share more -- but as you point out, it does raise
        a question about the profitability of that segment
        of their business. Just one more thing for investors
        to fret about. Judging by how EB runs the rest of
        their business, though, I am going to assume that they
        are just as smart about their Web unit.

        Thanks
        for bringing that up. Point well made.