For investors seeking investment vehicles with significant near-term appreciation potential, Sparky highly recommends the common shares of Tiger Telematics (TGTL) and Pediatric Prosthetics (PDPR), which are further reviewed below.
Sparky's been extremely busy lately, but sometime within the next 30 days he also hopes to complete at least brief reviews of two (2) other highly-recommended companies (ALAN and HCCF) and upon completion will post related write-ups on this site.
NOTE - Having attended the Electronic Entertainment Expo (E3) in Los Angeles on May 19th, Sparky’s happy to report to his readers that he’s now more excited than ever not only about Gizmondo as a revolutionary entertainment platform, but also about TGTL shares as a sound investment growth vehicle.
During the day Sparky visited the Expo, he spent several hours at the Gizmondo booth, he met a handful of very nice key Gizmondo people, he witnessed just how well TGTL management interacted, he noted how enthusiastically the Gizmondo device was received by most who used it for the first time, and he considered the semi-hypnotic trance-like state that most of the attendees seemed to be in as a pretty clear indication that first-year Gizmondo sales between 1.5 and 3 million units is truly achievable.
On a lighter note, this weekend Sparky hopes to compile a photo album of his visit to the Gizmondo booth at the E3. Those wishing a copy emailed to them are welcomed to email Sparky at the email address at the bottom of this piece. Be advised, however, that most of Sparky’s photos are of Gizmondo girls, including his favorite. So if you still wish a copy, please be sure to mention “Allstocks” and “E3 photos” in your Subject Line so Sparky knows what prompted your email and what it is you want.
Go Tiger Telematics!
Sparky
Tiger Telematics is the Jacksonville, Florida-based company behind a futuristic multi-function mobile gaming machine called Gizmondo (formerly Gametrac). Just launched in the UK, Gizmondo is likely to hit retail shelves in the US and throughout Europe in the not too distant future.
Being one of the first lucky soles to obtain a Gizmondo, Sparky is now more certain than ever that this high-quality device is about to a capture a much larger slice of the sure-to-be-huge next-generation mobile entertainment device market than even the Street's most astute observers can now possibly comprehend.
In an attempt to explain and justify all this optimism, in the paragraphs below Sparky offers a more detailed look at the Product, the Company, the Competition, the Industry, and then closes with an Overall Conclusion.
The Gizmondo is about 5.5 inches wide, it’s about 3.5 inches high, at its widest point it’s a little over an inch thick (138 X 82 X 32 mm), and it weighs about 5.5 ounces (155 grams). The outer shell is made of a durable and stain-resistant slated-colored composite material that has a real nice rubbery feel. The unit’s rectangular screen, measuring 2.25 by 1.75 inches (a 2.8” TFT LCD display), is nicely bordered, and it sits right in the console’s center.
At first glance, Sparky thinks most readers will view Gizmondo’s appearance as desirably futuristic and obviously built well with high-quality materials. And upon further inspection, Sparky thinks most readers will agree that the Gizmondo resembles no other existing device, particularly in terms of its multi-functionality.
Under the hood, Gizmondo comes equipped with a Samsung ARM9 400 MHz Processor, an Nvidia 3D GoForce 4500 graphics accelerator, and a Micronas audio IC, a single chip MIDI synthesizer.
Aside from being an exceptionally-responsive gaming device that’s not only fast, crisp looking, and great sounding; the Gizmondo also performs the following neat functions: It serves as a movie player, allowing users to view full-feature videos in MPEG 4 format using the unit’s built-in Windows Media Player 9 and SD Card slot; it functions as an MP3 player permitting users to download and listen to audio files stored in either MP3, MIDI & SP-MIDI, WMA, or WAV formats; it’s an SMS & MMS messaging facility that lets users easily send text, image, and music files; and it sports a neat, high-resolution digital camera.
Gizmondo’s also equipped with a unique global positioning system; it’s wired for GSM tri-band networks so it can be used in 5 continents; it supports Bluetooth wireless technology, which allows not only multi-player competition but also makes connecting to any enabled device a snap; it has USB connection capabilities; and with its removable memory cards, it provides users with unlimited storage.
In addition to having more features than any competing units, Gizmondo is the only device among this new generation of completely mobile gaming consoles that uses a version of Microsoft Windows (CE.NET) as its operating system.
To accomplish the difficult challenge of converting the Gizmondo idea into an actual product, TGTL, during the past 14 months, has entered into a number of strategic partnerships with some of the most reputable design, engineering, software, manufacturing, marketing, public relations, and distribution companies in the world.
In the initial design stage just over a year ago, TGTL entered into a venture with Plextek, one of the largest independent electrical design and consulting firms in the UK. Then within weeks, a strategic partnership was also formed with Synergenix Interactive AB, a deal regarding the use of Morphum games on Gizmondo’s revolutionary mobile gaming platform.
About a month later, TGTL entered into a strategic partnership with Intrinsyc Software International, a respected Microsoft Gold Level Windows Embedded Partner, and elected at this point to utilize Microsoft Windows (CE.NET) as Gizmondo’s operating system; the an event that marked the real start of Sparky’s interest in this Tiger Telematics matter.
TGTL then teamed up with Xilinx; a company that’s become a respected leader throughout the semiconductor industry when it comes to programmable logic. Along with Plextek and Intrinsyc, this trio produced the initial Gametrac units, the ones displayed at the 2004 Consumer Electronics Show in Las Vegas back in January of 2004.
Shortly thereafter, TGTL announced collaboration with Fathammer Alliance, a leading supplier of advanced 3D graphics and game technologies for mobile platforms, a move that Sparky thinks will assure that the quality of the games remains consistent with the quality of the device.
Days later a strategic partnership between TGTL and MINICK was announced. MINICK has already built one of the largest premium messaging networks in Europe, and operates its own SMS & MMS centers that connect directly to mobile networks. This partnership sets the stage for Gizmondo units serving as a platform that allows TGTL’s Smart Advertising (Smart Adds) service.
In late February it was announced that Gizmondo will be using Samsung’s world-class S3C2440 Mobile Applications Processor. Sparky thinks Samsung, known for its distinguished multimedia and gaming experience, was an excellent addition to this growing TGTL team; and that it helps assure that Gizmondo’s performance remains the fastest on the market.
In early March, TGTL announced its plans to use a cutting-edge audio IC, a single chip MIDI synthesizer, that’s made by well-known audio specialist Micronas, a move providing Gizmondo units with notably superior audio quality.
On the all-important production front, TGTL announced in mid-December of 2003 that Celestica, a huge and respected worldwide leader in delivering innovative electronics manufacturing services (EMS), will be providing Gizmondo with such services.
Equally impressive, in late March TGTL signed an agreement with CATIC, a giant State-Run Chinese conglomerate, which involved “… sales, distribution, technical support, and numerous other joint ventures for all Chinese regions,” which Sparky interprets as meaning that CATIC is also very likely to be the manufacturer of Gizmondo units sold in the Chinese region, particularly if demand from fast-growing high-tech Asian markets is anywhere near as intense as Sparky expects it to be.
Also on the distribution front, TGTL announced in late April that it had entered into an agreement with Toys R Us, whereby the popular retailer, with 64 area outlets, will be the first to sell Gizmondo in the UK.
Also in April, TGTL announced that it had selected Ogilvy Public Relations Worldwide as its Agency of Record.
Managed by some of the planet’s most respected marketing executives, Ogilvy currently represents some of the most reputable companies in the consumer electronics industry, including but not limited to Cisco, Dell, HP, Microsoft, NCR, Oracle, and Xilinx. Sparky thinks that Ogilvy PR is a wonderful addition to this already-impressive TGTL team, an addition the Street has yet to realize the full beneficial implications of - but Sparky thinks during the first quarter of 2005 it will!
On the sales front, in June, TGTL announced it had signed a letter of intent with Auckland-based Renaissance Corp, a respected marketer and distributor of high tech electronic specialty products, wherein Renaissance plans to distribute an estimated 150,000 Gizmondo units throughout New Zealand & Australia.
On the MP3 front, in July TGTL announced it had negotiated an arrangement with OD2, a Loudeye subsidiary that's one of Europe’s leading music distributors, and which will assure Gizmondo owners seamless access to at least 1.3 million tracks by over 12,000 artists.
Back to sales, in July TGTL announced arrangements it reached with Minnesota-based Redline Marketing and Texas-based Tartan Sales, wherein together these sizable marketing firms plan to sell an estimated 800,000 Gizmondo units throughout parts of the US, Canada, and Mexico.
Then in early August, in a move that’s sure to improve quality and cost control, TGTL acquired Stockholm-based Indie Studios, a leading developer of next-generation games.
Ever destined to remain on the leading edge, TGTL also announced in August that at launch Gizmondo will come equipped with the electronics industry’s most advanced and envied on-board and non-volatile memory chip, called the mDiskOnChip G3, made by M-Systems.
And to assure its ability to fill the growing number of sales orders, on the last day of August, TGTL announced an arrangement it had made with Flextronics (FLEX), the world's leading Electronics Manufacturing Services (EMS) provider, as Gizmondo’s new volume manufacturer. By utilizing Flextronic’s high-volume manufacturing capabilities and global reach, Tiger Telematics should be able to bring far more units to market by the first quarter of 2005 then originally planned.
Then on September 2nd, TGTL announced that it had selected Daniels & Associates as its exclusive Investment Banker. Based in New York and headquartered in Denver, with worldwide coverage, Daniels & Associates is a leading investment bank that focuses exclusively on the cable, telecommunications, media, and technology industries.
On September 7th, TGTL announced an agreement it reached with Playcom Software Vertriebs GmBH, a leading German games wholesaler and distributor, wherein Playcom will be Gizmondo's exclusive distributor in Germany & Austria. This order involves an estimated 120,000 units, as well as related Gizmondo accessories.
Then on September 14, TGTL announced that it had entered into an agreement with John Lewis Department Stores, one of the UK’s top ten retailers, where Gizmondos will be sold in the companies 26 stores and through its on-line facilities.
About a week later, on September 21st, TGTL announced that Gizmondo units will be shipped with the world’s first 3D Wireless media Processor (WMP), the GoForce 3D 4500, which is made by NVIDIA Corporation (NVDA).
Featuring “high-performance 3D and multimedia functionality, revolutionary power management (battery conservation), and 3.1 megapixel camera support,” all in a single processor,” Sparky thinks the GoForce 3D 4500 is about to rapidly become the industry’s envied standard for portable devices, particularly those sporting a multimedia emphasis, like the Gizmondo. It was also announced that over the next year the two companies plan to distribute up to 500 advanced software development kits throughout the game developer community.
A few days later, on September 23rd, TGTL announced a Scandinavian distribution deal it had entered into with Gizmondo Nordic AB, a company founded last summer by two proprietors with much retail and distribution experience. Per the terms of this agreement, Gizmondo Nordic’s planned distribution area includes Sweden, Norway, Finland, and Denmark. The Heads of Agreement signed by the companies covers a targeted volume of approximately 90,000 units in the first stage for Scandinavia.
On October 5th, TGTL reported that it had retained the gaming PR agency Indigo Pearl, Ltd to coordinate the public relations associated with the UK launch of Gizmondo. Indigo Director James Beaven describes Gizmondo as “… a superb piece of technology and extremely desirable,” and he and his team bring with them experience in video games and consumer media markets totaling 30 years.
Then on October 11th it was announced that TGTL had signed a contract with >b>SCi Entertainment Group, a leading games publisher, under which Gizmondo has licensed the rights to develop and publish 12 SCi games for the new Gizmondo platform. This agreement covers both existing titles, those now in the pipeline, and it also establishes a future business relationship between the two firms.
Widely renowned for delivering razor sharp entertainment on every gaming platform, popular SCi game titles include the Conflict series, most recently Conflict: Vietnam; the notorious Carmageddon franchise, the intensely-fast Richard Burns Rally, and an A-list 2005-2006 lineup.
Just days later on October 13th, TGTL announced an agreement it had entered into with Warthog. Formed in 1997 and with offices in the UK, the US, and Sweden; this critically-acclaimed independent games developer has already successfully launched over 20 games on all major platforms. Even a partial list of the clients and titles that Warthog’s worked on that includes Electronic Arts with Harry Potter and the Sorcerers Stone, SCi with Rally Championship, Universal Interactive with Battlestar Galactica, and Warner Bros/EA with Looney Tunes and Back in Action; demonstrates quite clearly the gaming industry’s widespread respect for this new partner company.
Looking ahead to the planned early 2005 Gizmondo launch in the giant US market, TGTL announced on October 18th that it had reached an agreement with Ditan Corporation, a leading retail distribution provider. Gizmondo Europe’s Head of Sales, Jamie Robertson, summed it up well when concluding that Ditan’s “… logistics model generates cost savings and competitive advantages, and most crucially gets us [Gizmondo] to market seamlessly and with nationwide capacity.” In addition to being widely respected for its leading logistics management, Ditan also appropriately specializes in the direct–to-store US distribution of time-sensitive products.
Weeks later, on November 3rd, Tiger Telematics announced the acquisition of the subsidiaries, intellectual properties, and assets of Warthog. This strategic move brings with it not only a fantastic portfolio of 12 games, but also Warthog’s Tusk, a robust game engine porting tool that is certain to hasten the conversion of all the present and future third-party games that will ultimately run on TGTL’s Gizmondo. Also, as part of this acquisition, Warthog Executive Directors Ashley Hall, Steven Law, and Simon Elms will become members of the Tiger Telematics workforce; a vertical integration move that will further strengthen TGTL’s management infrastructure as it rapidly undergoes a corporate focus transition from design & engineering to production & distribution.
The next day, November 4th, TGTL confirmed it had entered into a one-year Gizmondo distribution agreement with Barcelona, Spain based United Electronics SL, an electronics distributor with over 30 years experience. The deal involves at least 30,000 units, it covers markets in Spain and Portugal, and the initial 15,000 unit order is supported by an Irrevocable Letter of Credit.
A day later, on November 5th, Tiger Telematics announced the acquisition of UK based Integra SP and its revolutionary real-time front end product AltioLive. With its respected process management software and its skill in the integration of real-time systems, Integra SP has built an impressive client base that includes the likes of Deutsche Bank, HSBC, the NASDAQ, and Deutsche Borse.
Through the integration of AltioLive software, TGTL plans to establish a new product line code-named (only for now, Sparky hopes)Bizmondo. Capitalizing on Integra SP’s domain expertise and AltioLive’s ability to integrate with many financial institutions and support a wide range of formats and protocols; Bizmondo devices, Sparky thinks, should be very well received throughout the Finance, Government, Public, and Energy sectors.
On November 8th, TGTL announced the signing of a contract with Microsoft Game Studios; a deal that will bring five Microsoft game titles to the Gizmondo, the first three of which are Age of Empires, MechAssault, and It’s Mr Pants. This agreement will not only afford Gizmondo users the opportunity to experience top Microsoft games, but also a first-time chance to experience complete mobility.
Ten days later, on November 18th, TGTL announced its decision to incorporate Zi Corporation’s advanced test input technology, called eZiTap, as a core Gizmondo feature. Looking forward Sparky thinks that TGTL’s utilization of eZiTap, a real nifty software package that learns and then predicts user text input with uncanny accuracy, will very nicely enhance, and simplify a Gizmondo user’s text input capabilities. This in turn will serve to quite rightfully further accentuate Gizmondo’s state-of-the-art global messaging capabilities.
**** Much has happened since, particularly on the game front (See TGTL Press Releases)- Sparky will soon update ****
Considering the impressive cast of above characters that TGTL has assembled, Sparky believes he has every reason to believe that not a single one of these outstanding firms would have ever entered into an agreement or a joint venture with Tiger Telematics if, in fact, they didn’t consider the Gizmondo to be one hell of a multi-functional gaming device!
Based on Gizmondo’s present specs, it appears the unit’s primary competition will come from Sony’s new PSP and from Nintendo’s new dual screen unit called DS. Another smaller industry member is Tapwave, with its PDA-like Zodiac models, which also have mobile gaming capabilities. And similarly we have Nokia with its gaming smart phone called N-Gage, which last Sparky heard Nokia redesigned and re-introduced at the E3 Expo in Los Angeles, CA several months back.
Nintendo’s DS sports large double screens; a backlit , 3-inch semitransparent reflective TFT color LCD with 256 x 192 pixel resolution and .24 mm dot pitch on the top, and the same on the bottom, but with a transparent analog touch-screen surface. The sleek-looking DS is silver and black; when closed it measures about 5.85 inches wide, about 3.3 inches long, and about 1.15 inches thick (149 mm x 85 mm x 29 mm); and it weights about 9 ounces (250 g).
With the power of twin CPUs, an ARM9 and an ARM7, the DS is truly a quality gaming device, complete with wi-fi and video capabilities; it comes equipped with a rechargeable lithium ion battery; it has ports for both Nintendo DS Game Cards and Game Boy Advance (GBA) Game Paks; and it was launched in the US on November 21st. Nintendo’s DS currently sells for around $ 150.
The only publicly expressed criticisms about the DS that Sparky’s seen in any numbers have been that it can’t play original Game Boy / Game Boy Color cartridges, that there are only a few games available at this time that actually take advantage of its dual screen design, and that as a console the DS is far bulkier than previous models.
Sony’s PSP, another quality gaming device that’s not only wi-fi equipped, but also sports video & MP3 capabilities, was launched in Japan on December 12th and is currently being sold for about $ 195. Measuring about 6.7 inches long, 2.9 inches wide, and.91 inches thick (170 mm x 74 mm x 23 mm), and weighing about 9.3 ounces (260 g); the PSP proudly displays a giant 4.3 inch, 16:9 widescreen TFT LCD screen.
As its main media, the PSP uses Sony’s Universal Media Disk (UMD), a 60 mm disk that can hold up to 1.8 GB of data on dual layers. Thus far, aside from a few lingering backward compatibility issues, the PSP has received very little in the way of publicly-expressed criticisms.
Few would argue that at this point in time worldwide interest in mobile gaming is growing at an exponential rate; but only with the recent launches of Nokia’s N-Gage, Tapwave’s Zodiac models, Tiger Telematic’s Gizmondo, Nintendo’s DS, and Sony’s PSP, has a new Mobile Gaming Industry now emerged from its perceived embryonic stages of development.
And even though it now seems clear to most observers that a new industry’s been born, its prevailing infancy status has yet to attract the serious interest of very many analysts; which Sparky thinks is partly due to the lack of any historical data that would support unit sales and/or profitability predictions. Sparky’s also noticed that very few analysts are yet willing to predict the extent to which future unit sales in the mobile gaming industry will prove to be at the expense of unit sales in other gaming consoles – and the few analysts who do, do not agree.
That having been said, someone needs to finally break the ice and predict how many “mobile” gaming units this new industry will sell during its first real full year of existence, and it may as well be Sparky. And, because we’re trying to predict future sales of next generation gaming consoles, Sparky thinks we should begin by reviewing the last generation’s unit sales totals up through the end of 2004.
Because Sony, Nintendo, and Microsoft collectively produced over 90% of all the gaming consoles sold over the past four years; for purposes of this analysis Sparky will conclude that the last generation of consoles was essentially comprised of Sony’s PlayStation 2, Nintendo’s GameCube, and Microsoft’s Xbox.
There seems to be a consensus among industry observers that by year end 2003 Sony had sold about 70 million PlayStation 2s, Nintendo had sold about 14 million GameCube units, and Microsoft had sold about 14 million Xbox units. This would suggest that approximately 98 million “last generation” units were in place just about a year ago.
Turning now to 2004 unit sales estimates for these same three consoles, there are many differing opinions as to what quantities will be sold. As usual, the companies have disclosed very little in the way of any actual numbers, and a very recent wave of price cuts has further complicated the 2004 unit prediction process.
Sorting through all this, Sparky’s elected to side with conservative estimates and therefore concludes that Sony will sell at least 18 million PlayStation 2s in 2004, Nintendo will sell at least 6 million GameCube units, and Microsoft will sell at least 6 million Xbox units – a three-company unit sales total for 2004 of at least 30 million consoles.
Adding these estimated 2004 unit sales to the existing 98 million unit base, Sparky thinks it’s a safe assume that the last generation console base, of these three units, now sits at around 130 million units.
Because the next generation of consoles will be completely portable yet still wirelessly connectable for competitive play; because they will be capable of playing an entirely new generation of far more complex and interactive games; and because they offer additional functions such as messaging, MP3 music, and videos; Sparky thinks the console transition that’s now just beginning will happen much, much quicker than all prior console upgrade cycles.
In addition, this next generation of consoles will be the first to benefit significantly, from the outset, from far stronger Asian demand; and from ongoing demographic expansion within existing markets.
For these reasons, Sparky thinks unit sales of next generation consoles during the first full year will be at least 15% of the approximate 130 million unit base of last generation consoles, and could very well be as high as 30%; or a range from 19.5 to 39 million next-generation consoles.
Building upon the foundation presented above, Sparky thinks Gizmondo will capture at least a 5% share of this new mobile console market during year one, and very possibly 10%, which translates into a range of 975,000 to 3.9 million units.
To date, Sparky’s made two observations that tend to support this market share range estimate of 5% to 10%. First observation, while Microsoft’s Xbox sales accounted for at least 15% of the last generation console’s sales, the closest thing to a Microsoft device in the next generation of consoles is TGTL’s Gizmondo. And second, for those that haven't been counting, the sales orders previously announced by TGTL and summarized above already exceed one million units!
Currently, Gizmondo’s listed sales price is about $ 420; but because Sparky thinks prices may very well drop sharply during the first year (particularly if unit sales involve service plans and related provider subsidizations), for purposes of this illustration an average first-year sales price of $ 350 per unit is assumed. Also to keep things conservative, Sparky’s assuming a gross margin on sales of only 12% (or about $ 42 per unit). So, a worst-case 970,000 units would translate into gross income of about $ 40.95 million and a best-case 3.9 million units would generate gross income of about $163.8 million.
Moving on to all the post-sales revenues that are likely to be associated with each Gizmondo sale, first and foremost we should consider gaming software sales.
The number of software units sold for each console sold, which is commonly known throughout the industry as a “tie ratio,” is influenced by many factors ranging from the quality and prices of the software to the nature of the relationship between the game producer and the console maker.
In the case of TGTL, the company has no low-margin prior-console games to convert; it has a 12-game in-house portfolio from its recent acquisition of Warthog; it has been licensed to sell five Microsoft games; and it stands well positioned to benefit from the powerful overall lure of next generation games.
For these reasons, Sparky predicts that during the first year of full production TGTL will sell at least 5 games for every Gizmondo unit it sells and that on each game sale TGTL will realize gross income of at least $ 10. And because not all the first year units will be owned for a full 12 months, all post-sale revenue items will be divided by two, so as to conservatively reflect a six-month average instead of 12 full months.
So totaling this up, Sparky predicts that TGTL’s gross income from game sales will approximate $ 25 per unit and will fall between $ 24.37 million and $ 97.5 million during the first full year of production.
Also along the lines of post-sale income, TGTL will hopefully be participating in related monthly service plans, in Smart Adds, in MP3 music sales, and in video sales. Lacking available data at this point, Sparky thinks it’s conservative to estimate that each unit will generate an average of at least $ 10 every month from this non-gaming combination of service plans, Smart Adds, and music & video sales.
Again dividing this $ 120 annual amount by two to reflect part-year ownership, Sparky conservatively estimates that during year one each Gizmondo unit will generate at least $ 60 in gross income from non-gaming-related post-sale revenues. Using a range of 975,000 to 3.9 million units, this translates into post-sale non-gaming gross income between $ 58.5 and $234 million.
And lastly, we must not overlook after-market accessory sales. Within this group, Sparky would include everything from battery, cable, charger, and earphone replacements to carrying cases, video viewing cradles, custom casings, and all the other related gadgets that are sure to follow. For purposes of this analysis, Sparky estimates that annual gross income from accessory sales will total about $ 20 per unit. Dividing this amount by two, Sparky predicts that gross income derived from first year accessory sales will fall between $ 9.7 and $ 39 million.
To sum up all these predictions, under a worst-case scenario of 970,000 units we have gross income of $ 40.95 million from unit sales, $ 24.37 million from gaming software sales, $ 58.5 million from non-gaming sales, and $ 9.7 million from accessory sales. This adds up to worst-case gross income of $ 133.52 million.
And under a best-case scenario of 3.9 million units we have gross income of $ 163.8 million from unit sales, $ 97.5 million from gaming software sales, $ 234 million from non-gaming sales, and $ 39 million from accessory sales. This adds up to best-case gross income of $ 534.3 million.
Now bear in mind, the above numbers are gross income totals, not sales. In other words, the cost of goods sold (production labor & material) has already been netted out. So to arrive at TGTL’s pre-tax net income, Sparky must now deduct general & administrative (operating) expenses from the above gross income totals.
As with most companies, TGTL’s operating expenses are likely to vary with sales volume and ideally as unit sales increase resulting economies of scale will reduce general & administrative expenses, at least when expressed as a percentage of sales. But for the purposes of this write-up, Sparky conservatively assumes under both the best and worst case scenarios presented above, that operating expenses will approximate 25% of gross income during the first full year of production.
So assuming that 75% of the above gross income totals will be pre-tax net income, Sparky believes that Tiger Telematics will report first year net income in the range of $ 100.1 to $ 400.7 million.
The next obvious question is; what would these net income figures translate into on a per share basis? Well Sparky has no way of knowing how many TGTL shares will be outstanding at the end of the company’s first year of production, but in an effort to remain conservative let’s assume that under our worst-case scenario of 975,000 units TGTL has 50 million shares outstanding, and that under our best-case scenario there are 75 million shares outstanding.
To put these share count estimates into better perspective, Sparky believes that there are approximately 33 million shares now outstanding; so a level of 50 million would represent a 51% increase over the next year and a level of 75 million would be a 127% increase. Sparky thinks these outstanding share estimates are ultra-conservative in that they leave TGTL’s management ample room to cut additional gaming deals, to finance any needed expansion, and to even further vertically integrate through additional acquisitions during the all-important first year.
Doing the math, the above net income on 975,000 units of $ 100.1, million divided by 50 million outstanding shares, would yield worst-case scenario per share earnings of $ 2.00. Similarly, the above net income on sales of 3.9 million units, of $ 400.7 million, would yield best-case scenario earnings of $ 5.34 a share.
The next logical question is; what share prices would the above earnings range produce? To answer this question, we must try and predict the Price-Earnings (PE) ratio that TGTL shares will command.
Although Sparky thinks this next generation of multi-functional consoles is worthy of its own industry label, at present there is no such collection of member firms. And for this reason, there are no existing measures upon which to base an industry-wide PE estimate. Looking around for firms that share product and market outlook similarities, one will find much deviation in PE ratios. As examples, Research in Motion (RIMM) is now trading at a hefty 85 times earnings, but meanwhile Atari (ATAR) shares trade at 16 times earnings.
The same holds true among the gaming software companies, with Electronic Arts (ERTS) and THQ (THQI) now trading at multiples of 32 and 35 respectively and with Take-Two Interactive Software (TTWO) and Activision (ATVI) now both trading at 24 times earnings.
Personally, in light of Gizmondo’s promising near-term outlook and its explosive long-term potential, Sparky believes that a first-year multiple in excess of 25 is not only possible but also very probable. But to remain conservative, Sparky will assume in this write-up a first-year PE ratio of 18, which is the multiple at which the Dow Jones Industrial Average now trades.
Applying this multiple of 18 to the above $ 2.00 and $ 5.34 per share earnings amounts, Sparky predicts a first-year TGTL share price range of $ 36 to $ 96.
And if instead we apply Sparky’s estimated PE multiple of 25 to the above $ 2.00 - $ 5.34 EPS range, the share price range would be $ 50 to $ 133.50!
Although the many numbers used above to calculate this share price range do not reflect any input at all from Microsoft, from Nintendo, from Sony, or from Tiger Telematics; Sparky sincerely believes that he did take particular care to remain ultra conservative while compiling the above analysis.
Furthermore, if at any time during the next year TGTL were to sell more units than estimated above, realize wider gross margins on games sale than assumed herein, generate higher music and video sales than predicted above, or gets either an additional version of Gizmondo or its planned AltioLive-equipped Bizmondo on retail shelves within a year; Sparky thinks the above share price estimates would have to be adjusted upward sharply.
And as we look ahead to year two, bear in mind that the Gizmondo unit base will then be bigger; so Sparky won’t be dividing, as he did above, all the post-sale revenues associated with first-year units by two in order to reflect a six-month ownership average.
To conclude, for all the many reasons mentioned above, Sparky views TGTL shares as an excellent addition to any growth-oriented portfolio and highly recommends accumulation anywhere near current levels.
Respectfully,
Sparky
06/03/2005
SparkysPicks@comcast.net
Pediatric Prosthetics (PDPR) is a Houston, TX based company that was started just over a year ago by Linda Putback-Bean, her husband Ken Bean, and Dan Morgan. As the name implies, PDPR is in the artificial limb business with a focus on children. The company’s stated mission is to provide these unique services coast to coast in the US by establishing a national network of specialty affiliates.
Linda, who serves as the company’s CEO, began her career over 18 years ago; she pioneered the use of myoelectric upper extremity prosthesis; and she’s been very favorably featured in several trade journal reviews, magazine articles, and TV documentaries. In addition, Linda is well known throughout the industry for her ability to provide needed support to the often-devastated parents of her many patients. Her husband Ken, PDPR's Operations VP, not only brings decades of corporate management experience to PDPR, but he’s also the seasoned pilot that makes PDPR so desirably flexible.
Dan Morgan, who serves as PDPR’s Vice President and Chief Prosthetist, is a world-class Prosthetist-Orthotist with over 30 years experience. Having built his practice along the Texas Gulf coast, Dan was Texas Shriner’s Burn Hospital’s prosthetist of choice for years.
Sparky believes that this little company is truly in the right place at the right time, that the insiders are among the most dedicated and reputable health-care providers one will ever encounter, and that during the next 12 months PDPR shares will trade in the $ 0.60 to $ 1.00 range, and perhaps much higher.
In the case of PDPR, Sparky’s application of the old "right time - right place" logic is based on his awareness of America's huge and unsatisfied demand for precisely the unique pediatric prosthetics services that PDPR provides.
What's more, with a patient base comprised solely of still-growing children, PDPR is also very uniquely positioned to profit handsomely from all the required annual re-fits, the annuity effect, which begins right about now. For a good look at Pediatric Prosthetics, Sparky urges readers to check out the company’s website at www.kidscanplay.com.
Sparky is now in the process of compiling a far more in-depth and analytical report on Pediatric Prosthetics and upon completion will post it here.
Respectfully,
Sparky
06/03/2005
SparkysPicks@comcast.net