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Author: foolSocrates One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1220  
Subject: Baffling Downsizing Date: 12/30/1999 2:20 AM
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Hasbro has me baffled. Some of my bafflement is probably related to my rookie status as an investor. I still have lots to learn and there are things that I am very uncertain about.

But following Fool teachings, I have gained a lot ground in this last month or so of online financial browsing.

First off, I think Hasbro is a great company, with tremendous branding and owns so much that is dominate in its sector. But Like many other fools, I am curious about this stock and why is isn't doing better.

I look at the financials and they seem to have very good cash flow, good price/earnings ratios and they seem to pass the muster in other number crunching calculations that the good Fools are teaching me to exercise on evey stock that I am planning to purchase with my hard earned cash.

But the bottom line numbers concern me. I feel Hasbro has the potential for being a much richer stock, one worth holding for a long time to come.

However, their actions their actions seem contradictory to their stated directions.

Observation number One:

The recent downsizing of 2200 souls worldwide disturbs me. The main reductions were to plants outside the US, Mexico and England. But I have heard absolutely no information on exactly what was manufactured at those plants. I am curious as to what was being eliminated.

Observation Number Two:

This downsizing also included the closure of the Microprose site in North Carolina. Everyone there was "let go" I did not see any mention of that site in their official press release. Even more distrubing, Microprose and the talent assembled there are active in the gaming/interactive/high tech market sectors that Hasbro says they are moving towards. Why eliminate talent that you need to grow the parts of the industry that you are moving towards? This seems to be a tremendous contradiction.

I have a strong opinion on what it takes for a company to be a meaningful player and strong leader in the Gaming Industry.

The would have a core technology team that is internal to the company. This team would be long term in the commitments and goals for state of the art gaming products. That is why the team must be internal and not outsourced. Ownership for company and the people working on the core technologies are key to being world class leaders in this arena.

I read somewhere that Hasbro is spending 50-60 million to build game.com their internet gaming center. That suggest a lot of money for setting up web server hardware to deliver the gaming content. Lots fo technical people to handle the transmission functions, the gaming engines to drive the content of the Monopolies, the tools to drive the software, and the artist and media people to define game content and interface.

I would appreciate hearing more particulars on the methods Hsbro plans to use to get to this goal. I also wouldn't mind being a part of making it happen <BG>.
They've struck deals to get their properties running on some existing internet game playing sites, but I would like to see them controling as much as possible the technologies, hardware, and intellectual properties associated with this project.

If hasbro is planing on following Electronic Arts business methods of outsorcing projects, investing in companies that look promising, then I think that is the wrong model for them to mimic.

This doesn't sem to fit the goals of online gaming. Plus (and I keep coming back to this) Hasbro has all these wonderful properties that need to be nutured for their long term interests. Outsourcing can cheapen a products image, mainly because, in the interest of making clinet deadlines, a temendous amount of control is reliquished to outsourcing firms.

So, to me, its crucial that Hasbro have an internal technical crew, and given the scope and timeline for bringing this bigtime, game site the crew better be very good at what they do, and Hasbro better be payimg them comfortably and well.

I am very close to buing Habro, I think it is a stock tha should be trading in the mid 30s. But without knowing more particulars on how they plan to grow in interactive gaming environments, I am having a hard time finding the higher confindence in placing an order.

-John
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Author: blondydog Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 647 of 1220
Subject: Re: Baffling Downsizing Date: 1/10/2000 9:52 AM
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I agree with you in some respects on Hasbro. The stock price is too low, for starters, just based on current information. Hasbro's biggest competitor is Mattel which sells at almost 500 times earnings. Hasbro trades at 12 times earnings which is modest in ANY industry. The electronic entertainment industry is also typically traded at much higher EPS ratios. The big kid on the block there is EA and they trade at 45 times earnings.

With all of the great products Hasbro produces (especially POKEMON which somehow got 4kids a ridiculous stock price but did nothing for Hasbro which makes everything and anything Pokemon in North America) its kind of amazing that this stock is so often overlooked. I know that the tech/computer arena has been the focus of most indie investors but Hasbro has exposure there too with one of the biggest electronic entertainment divisions around.

As to your questions behind the closing of the MicroProse facility in NC and the impact of that decision on the future. Outsourcing really is the way to go for computer games. Only it isn't really outsourcing in the truest sense of the word. Companies like EA cut their teeth on publishing games from smaller developers that couldn't get the dough to put a product out themselves. They have some of their own in house design teams like the EA Sports label but the majority of their projects are undertaken by external publishers (in some cases those publishers are owned by EA but they are still driven by their own internal management processes and are not in the same building with the bulk of EA's management team).

MicroProse has long been known as a developer of top rate simulation and strategy games. Computer games were a niche market for a long time. Only in the last 5 years has this medium begun to come of age. Unfortunately the mass market is not a great place for simulation or strategy. The games that sell well follow a proven formula which is 90% action 10% content. Simulation and strategy games just don't bring enough to the table for most gamers. Either that or the learning curve is too high to attempt in a limited amount of time that most serious individuals could hope to devote to gaming.

As for your opinion on online gaming, I think it too is misguided. Ultima Online has up until now been the measuring stick for this genre of games. It is managed by DSI which is an external entity from Origin (and from its owner EA). Origin created the product and then left it in DSI's hands. Asheron's Call, the critically acclaimed Microsoft product that directly competes with UO is built and maintained by Turbine in a contract with Microsoft. Everquest was developed by an independant publisher. I think you can see where I am going with this. There is really no need to have a large in house design team when you can avoid the difficulties that go along with managing that team by simply buying the finished product from somewhere else. EA was built on that principle and publishers like Gathering of Developers and EIDOS continue to pursue that type of business.

As for the 2200 jobs, from what I have read about the layoffs this was largely a product of Hasbro's policy aggressive acquisition. They simply had more people than they needed to perform the tasks at hand, or eliminated product lines that were not profitable enough. The market should have responded to the news by pushing up the stock price but it did not. Right now the stock is rated a buy or hold by most analysts so there is no logical reason for the dip in price in recent weeks. In fact the only news has been good news.

I doubled my position in Hasbro today and if the stock continues to slump I will buy again. This is a great company that has a history of putting out quality product and re-energizing the companies it acquires. Just several years ago MicroProse was seen as a publisher that had tarnished its reputation by releasing buggy games. Hasbro fixed that and streamlined the company, removing potentially unprofitable projects from the table. With its recent acquisition of Wizards of the Coast, Hasbro has a monopoly on the Collectible Card Game (notably Magic: The Gathering and of course the ever-elusive Pokemon) as well as on the best-selling pen & paper role-playing game ever made, Advanced Dungeons & Dragons. It has exclusive rights to all products for the next two Star Wars films, a surefire way to put money in its coffers. Hasbro had the best toy last Christmas with Elmo, the best toy this Christmas with Pikachu and has consistently been able to provide an adequate supply of its hottest products. I see no reason why this stock can't double in price if investors open their eyes. The sky is the limit with Hasbro.

blondydog

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Author: blondydog Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 648 of 1220
Subject: Re: Baffling Downsizing Date: 1/10/2000 6:44 PM
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Sorry, need to make a correction. I said the hottest toy last Christmas was the Elmo doll. I meant Furby. As I am well past the target market for these toys I sometimes get them mixed up. Elmo was the hottest toy the Christmas before last =)

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