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Author: WayneOwl Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3296  
Subject: Hip Interactive ( HP.TO ) Date: 6/22/2005 9:43 AM
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OUCH!

Appears to be extremely serious accounting issues unearthed by the new CFO. Stock really getting hammered at the open. Also "facing liquidity issues".

http://biz.yahoo.com/cnw/050622/hip_interactive_ye.html?.v=1

Wayne
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Author: fakena Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1966 of 3296
Subject: Re: Hip Interactive ( HP.TO ) Date: 6/22/2005 11:58 AM
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yeah, they are getting slammed. Looks like losses from operations due to lower margins and volumes and possibly bad receivables. But it looks like they are writing off almost all publishing investment maybe even deciding to exit.

I'm about to buy a big armload I think. But it keeps going lower on ask each time I refresh quotes.

Duane

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Author: fakena Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1967 of 3296
Subject: Re: Hip Interactive ( HP.TO ) Date: 6/22/2005 12:18 PM
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I think I'll try a dime, and see if maybe I can get a bounce big enough to recover the loss for an 'even steven' day. This can't be good for my challenge average.

Duane

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Author: tengen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1970 of 3296
Subject: Re: Hip Interactive ( HP.TO ) Date: 6/22/2005 1:01 PM
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I think I'll try a dime, and see if maybe I can get a bounce big enough to recover the loss for an 'even steven' day. This can't be good for my challenge average.

Good luck Duane. My heart is with you (if not my wallet ;-).


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Author: sahfee Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1973 of 3296
Subject: Re: Hip Interactive ( HP.TO ) Date: 6/22/2005 9:57 PM
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http://www.canada.com/national/nationalpost/news/story.html?id=e3be5c8f-ebd6-475f-8fef-cf03742ef360

Singh said the future of Hip's business is in publishing its own games and selling game accessories under its Hip Gear division.

Sales from those two businesses account for under 20 per cent of Hip's overall revenue but profit margins are as much as 10 times greater than in distribution, Singh said.

"Gear and games - that's where the future lies, that's what the strategy is - those are the high-margin businesses."



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Author: fakena Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1974 of 3296
Subject: Re: Hip Interactive ( HP.TO ) Date: 6/23/2005 8:24 AM
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You know I didn't see any new information coming from those loss numbers, but now I see a reason for doubting their will be no more profits coming in from that National Post article.

"Gear and games - that's where the future lies, that's what the strategy is - those are the high-margin businesses."


Yeah this has been the strategy for over two years now, except it was the distribution "cash cow" that would provide the funds to speculate on publishing titles and paying a manufacturer to build large production runs of gear to their "Hip Gear" designs.

So if the head guy at Hip doubts their will be any more profits coming from distribution, there will be no more investments into publishing or gear made unless someone loans them cash or purchases a large block of shares. And to get $20 million now in equities it'll dilute shares enormously now. I can't believe Arindra wouldn't foresee a bounce back in margins and revenues when the next console generation starts cycling, but I guess I'd have to trust his judgement. And if I couldn't trust his judgement than I probably wouldn't want to own shares in Hip.

If its with regard to distribution then that write down may be real complicated as acquisition of LSP(Hip Europe) included distribution activity but also the personnel acquired were seen as invaluable into the future of Hips publishing and licensing efforts. Goodwill in total of almost $9 million but the acquisition cost was less than $2 million. I don't think the goodwill was apportioned to any particular activity or personnel at the time it was booked. Also over $4 million in goodwill attributed to purchase of SJS distribution pertaining to the preference shares granted at no cost but as an earn-in according to earnings provided. The shares were then converted into common and booked at the then market value of shares.

My dime price buy-in yesterday missed and it looked like shares were almost going to rise to a level that that buy would have covered the loss from current holdings. So it was disappointing that I missed buying more, however; now I'm not sure that I want to risk more cash on the company. Not if Arindra believes that the key "cash cow" of their distribution business won't be able to fund the higher net margin efforts anymore. Maybe thinking about an exit price for current holdings may be better thought time spent.

Duane

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Author: sahfee Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1976 of 3296
Subject: Re: Hip Interactive ( HP.TO ) Date: 6/23/2005 4:20 PM
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I don't know if this suggestion will help you any, Duane, but my thinking now in these situations is to take your money out as quickly as you can and put it into another stock which has the potential to go up a lot. I rule out stocks that have dropped so much and so relentlessly that there is a huge overhang of shares that people want to get out of just as soon as they can. I figure it's like trying to swim against the current and it's easier to go elsewhere. Good luck. I am still licking my wounds over losses incurred because I just couldn't walk away from a stock but had to try and recover my loss in that particular stock. As if there weren't any others to invest in.

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Author: fakena Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1977 of 3296
Subject: Re: Hip Interactive ( HP.TO ) Date: 6/23/2005 5:01 PM
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Yeah, I mentioned last post that buying more wasn't an option if the CEO has no views of a future in distribution. Publishing, licensing and the Hip Gear branding takes large amounts of investment annually and without that previous "cash cow" to fund that investment and provide a margin of safety to fall to, its not the type of company I want for huge holding %'s. I can't see them succeeding with that strategy without the distribution arm either. However, that distribution arm with 80% of Canadian market is probably still seen as a invaluable business to many others. Navarre (NAVR-Q) as an example previously tried to buy the video game division of the company Morley Chapwlick(Hip's founder) was previously running before Hip.

So I'm holding onto shares I have, as news such as a sale of distribution arm should move share price up immensely. It would be a mistake for Hip to continue operating it if all they see is losses occurring. Potential distribution volume is near $400 million in a reasonably good year. I think its got to be worth $40 million to someone, which is about $0.50/share to Hip owners.

The big liquidity problem to Hip is that the credit line has convenants attached to inventory. So if they sell it, they lose that credit line and have to repay outstanding loans. Damned if they do, and damned if they don't. I think they should sell it for at least $40 million so my shares can rise above $0.50 for at period long enough for me to exit. Arindra seems shareholder oriented, so maybe he can do this favor for me.

That's my prediction for future Hip news, Distribution unit sold for $40-80 million and most likely to Navarre. But I'm not willing to put any more cash into that scenario then I already have in it. Definitely thinking about placing that cash instead into either Coast Wholesalers that Wayne mentioned, Pacific Insight (liking the price to expected earnings), Stealth Ventures, Amisco, or Bevo(still trying to get $0.35/sh buy). Too many bad cards turning up in a row on Hip to add more, even though my expectations of the scenario warrant a good buy at present pricing levels. Definitely selling if I ever see $0.50 though again.

Duane

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