3SOF

QuoteJAKK: Short Interest UP 2.2% to 4.2M in Mid Dec 2007
Wednesday, December 26, 2007 16:18ET

According to new short interest data from NASDAQ, short interest for JAKKS Pacific Inc (NasdaqNM: JAKK) INCREASED 2.2% to 4,178,886 shares as reported in mid-December, 2007.
Based on JAKK's 20-day average daily share volume of 382,625, it would require approximately 11 day(s) of buying to cover this short interest.

Thanks for the info la-onda, I wonder why there are so many people short JAKK. I guess it is because of the media coverage of the recalls and "dangerous" toys

I guess JAKK is trading at about 10 times earnings because investors expect its earnings to grow about 10% going forward. So the p/e resembles the growth rate, it makes sense. However, because of what I'm seeing in the main street, with expanding international sales and Hannah Montana's success, I believe JAKK will grow EPS by more than 10% in 2007 vs 2006.

JAKK made $2.30 EPS in 2006, so it needs to make at least $2.53 in 2007 to grow 10%. Analysts have been slowly raising their estimates for the full year of 2007, but they're still at $2.48:



I expect JAKK to beat these estimates. By how much and the outlook to 2008 will tell us what to expect from this stock throughout the year.

Between now and mid February there's nothing else to do but to continue holding JAKK.

What is this, JAKK breaking down? It makes me sick, I feel like banging my head into the computer, it doesn't make any sense !!!

Wait, I have an explanation, which is a macro explanation and has nothing to do with JAKK's reality:

1) Because of the recalls and negative publicity, toy sales in general were and will continue to be weak;
2) Consumer spending in the US is and will be weak, and 82.3% of JAKK's revenues come from the US.

All I know is that Hannah Montana was sold out in major retailers in the US and man, if Americans are so poor now that they will cut on buying $10-$20 toys for their kids ... they need to learn how to fish and hunt for their survival

I'm sure that 4th quarter results for JAKK were above expectations, but I need to open my mind for being wrong about the long term outcome of this investment.

There are 4.2 million JAKK shares sold short, and part of this is non-sense related to the two reasons I've appointed. But it is possible that some part of it has to do with the long term and some people inside the industry knowing that WWE and JAKK will cease their collaboration in 2009, when the current agreement expires.

There was one sentence that made me feel a bit nervous:

«"The dismissal by the Federal Court of the action brought by WWE is a decisive legal victory for JAKKS and the other defendants. All of WWE's claims in the federal forum chosen, with great fanfare by WWE, including RICO, Robinson-Patman and Sherman Antitrust, have now been thrown out of court by a Federal judge. The Court is expected to render its comprehensive opinion by Friday and it remains to be seen how the opinion, which will address statute of limitations, injury and other issues, impacts WWE's state law claims. We eagerly await the Court's comprehensive decision," said Jack Friedman, Chairman and Chief Executive Officer, of JAKKS Pacific, Inc.»

These aren't the right words to say about a business partner, unless they are really angry at each other.

Oh my, I'll need to address the possibility of WWE dismissing JAKK as its partner in 2009 and the implications that will have on the fundamentals. But I'm not going to do it right away because I could get to an erroneous conclusion ... this is because I feel Hannah Montana may have sold more than WWE action figures in Q4, and that would completely change WWE's importance.

JAKK is breaking down but I'll keep holding at least until I get the 4th quarter results news and outlook for 2008.

JAKK finally showed some life today, closing back above the $21.54 level (which isn't technically significant anymore).

I maintain what I wrote in my latest update:

QuoteOh my, I'll need to address the possibility of WWE dismissing JAKK as its partner in 2009 and the implications that will have on the fundamentals. But I'm not going to do it right away because I could get to an erroneous conclusion ... this is because I feel Hannah Montana may have sold more than WWE action figures in Q4, and that would completely change WWE's importance.

JAKK is breaking down but I'll keep holding at least until I get the 4th quarter results news and outlook for 2008.

We may add the eyeclops bionic eye to Hannah Montana, as another contributor to diminish WWE's importance in JAKK's revenues and profits:

• JAKKS Pacific(R) Debuts the Next Generation of the Award-Winning EyeClops(TM) Bionic Eye at the Consumer Electronics Show and Hong Kong Toy Fair
PR Newswire (Thu, Jan 10)

Anyway, I see that I was probably wrong when I downplayed the importance of the litigation between JAKK, WWE and THQ. Even if JAKK wins the case, which looks probable, it doesn't matter if WWE doesn't renew its agreement with JAKK in 2009.

But, before we give too much relevancy to this issue, I'm quite confident that the Q4 2007 earnings were above expectations and the 2008 outlook will be positive. It will be crucial to know if WWE's action figures were less relevant in JAKK's revenues and profits this quarter, though.

I'll continue holding JAKK.

I'm fully aware now that I made a mistake when evaluating JAKK and made it repeatedly for a long time. But a mistake is only a mistake if one doesn't learn something from it.

The "mistake" was: I thought JAKK was cheap because of its historical growth and profitability patterns, which were remarkably steady and predictable. However, there was a lawsuit from WWE putting a cloud on valuation and because of that the stock didn't rise, even as fundamentals kept improving. I downplayed the importance of the lawsuit because JAKK's CEO had a 25 year relationship with WWE and the issue looked like a very small one. Also I thought it was normal for two mid size companies to disagree on a few things and take them to court to be resolved, not impairing the long term relationship. It turns out that not always people make the rational choices and it seems there are personal issues around this lawsuit and people are really angry at each other. So now I believe that JAKK will lose its WWE business starting in 2009 and that will have a material negative effect on its operations.

The lesson was: lawsuits are important and I need to know what's going on thoroughly and understand the risks of an adverse conclusion. In JAKK's case, the company may even win the case (as it looks like it will), but it doesn't matter if it ends the relationship with WWE anyway.

The correction of the mistake: I need to know how much of a contribution to JAKK's revenues and profits in Q4 Hannah Montana represented and how much of them came from WWE related products. With this data I'll see the impact a definitive end of the relationship between JAKK and WWE will have starting in 2009, and will see if the stock is still attractive or not.

If not I'll sell it without hesitation.

For now I'll keep holding JAKK.

JAKK hit resistance, prior support at $23.31 and it went down about 1% yesterday as a result.

The 4th quarter 2007 results will be crucial for my buy/hold decision. I'm pretty sure that JAKK beat consensus estimates, but it is the composition of revenues that interests me.

For now I'll keep holding JAKK.

JAKK closed above the $23.31 resistance level on volume above average:



Probably this was motivated by renewed interest in the toy industry after Mattel (MAT) reported its 4th quarter and full year 2007 earnings:

• Mattel profit grows 15%, tops forecasts, announces buyback
at MarketWatch (Thu 6:15am)

As a consequence of this MAT rose 11% on the session. Maybe the "recall" cloud will start lifting as better than expected results start rolling in, as I expected.

At yesterday's close, MAT trades at 13.6 times 2007 EPS. JAKK trades at 9.5 times 2007 EPS analysts estimates, which I believe the company will beat.

The problem is this discount valuation might be justifiable if JAKK misses WWE in 2009. But this still isn't the time to consider this issue, but just after the upcoming earnings release, conference call and 10-K form, where the company will disclose all the risks and informations regarding the trial with WWE.

In the meantime I'll keep holding JAKK.

JAKK closed back above the 50 days SMA and Hannah Montana continues to break records:

'Hannah' Holds Box-Office Sway With $29M

I don't think that Hannah's level of popularity is embedded in JAKK's revenue and EPS estimates for 2007 and 2008.

And JAKK has been making great products without even telling us, the investors, check this out:

JAKKS Pacific Hannah Montana Plug and Play TV Game

Maybe management just got tired of sending out positive press releases without any effect in the share price

After MAT's earnings I'm more confident than ever that JAKK will beat the 2007 analysts estimates and I'm eager for their 2008 projections and furthermore to know about the shape of JAKK's relationship with WWE.

I'll keep holding JAKK.

JAKK will release 4th quarter and full year 2007 results on February 20:

• JAKKS Pacific to Announce Results for Fourth Quarter and Year Ended December 31, 2007
Business Wire (Mon, Feb 4)

I'll keep holding JAKK.

JAKK showed unusual strength yesterday, climbing above the 50 days SMA on volume above average.

Results will be released February 20 and I expect them to be above expectations.

This is significant news for JAKK:

Jakks reaches licensing pact with WWE rival TNA

WWE switched JAKK for Mattel, which isn't good. JAKK signed an alternative agreement with WWE's rival TNA.

The market isn't enjoying this, since JAKK is down 5% plus in the pre-market. But this development was expected ever since JAKK's CEO said those harsh words after winning the Federal case between JAKK and WWE.

This was the explanation to why JAKK trades at 9 times earnings, while the Toy industry trades at 16 times earnings.

I still need to study more about TNA and I'm sick today, I just got out of bed when I saw the "news flash" on JAKK.

But at first sight this a major worry that gets resolved, out of the way. Perhaps the stock will claw back up after the lower open to finish higher on the day. The 1.4 million shares traded yesterday pushing the stock up 8.5% didn't do it for nothing.

I remain an optimist on JAKK's future and I'll keep holding the stock whatever happens today.

On a positive note here is what the CEO said about the switch from WWE to TNA, that will not occur anyway until 2010;

"By the time 2010 arrives, TNA should be able to increase its market share even more significantly," Jakks Chief Executive Jack Friedman said in a statement.
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Quote from: BigSully1 on February 13, 2008, 11:43:44 AM
On a positive note here is what the CEO said about the switch from WWE to TNA, that will not occur anyway until 2010;

"By the time 2010 arrives, TNA should be able to increase its market share even more significantly," Jakks Chief Executive Jack Friedman said in a statement.
-------------------------------------------------------

Yep, the market reaction to the news wasn't all that bad, with JAKK down 2.7% on the day after opening down 6.3%.

There were two main negatives about yesterday's news, one that was expected and another one that maybe still wasn't factored in.

The expected one was that WWE and JAKK won't renew their collaboration agreement after 2009. Since this was expected, it should also be expected that WWE wouldn't want to lose revenues coming from wrestling action figures. But, and this is the real bad part of the news, WWE settled an agreement with the World's largest toy company, Mattel, which is more than 10 times bigger than JAKK.

So, not only JAKK loses WWE, it will also face tough competition from MAT in the wrestling action figures market.

The good part of the news which I believe also wasn't priced in, is that JAKK won't lose all its wrestling action figures business because it signed an agreement with TNA, which is an alternative wrestling company to WWE.

I wonder what will be the impact of all this on JAKK's operations and long term value. Unfortunately JAKK doesn't disclose sales in terms of product categories, but WWE does and this is what they have on the 4th quarter earnings press release:

«Licensing revenues were $9.4 million as compared to $6.3 million in the prior year quarter, primarily reflecting increases in apparel, toy, and novelty related sales of 128%, 48%, and 161%, respectively.»

Hmmm, they say revenue coming from toys rose 48%, this is another indication that JAKK will beat the 4th quarter consensus estimate. Anyway, $9.4 M for apparel, toy and novelty related sales per quarter isn't much. It wouldn't be significant for JAKK, which sells about $800 M a year. But, no doubt JAKK has a much larger share of the pie when it sells a WWE action figure than WWE does, and probably that was the main factor which lead WWE to switch from JAKK to MAT.

I'll have to keep studying the situation, but as it is now I consider that JAKK has other much more promising products than wrestling action figures (like Hannah Montana related products and Plug it & Play TV games, for example) and these should make it continue to grow.

I still feel that that the resolution of this JAKK vs WWE story is a relief for investors. The stock has been clouded by this story for several years and perhaps now that it is over the sun may shine again.

I'll continue holding JAKK.

I feel bad about this, but I'm changing my mind about JAKK. Here are the two main reasons:

1) JAKK will have MAT's competition in the wrestling action figures market starting in 2010;

2) Hannah Montana probably delivered very strong sales in Q4 2007, but someone opened my eyes when saying: "That won't be there over the long term, because Miley Ray Cyrus is a real girl and she'll get older and her show will lose momentum and end. So, 5 years from now when she's an adult kids won't buy her dolls".

It's so obvious, I wonder why didn't I see it before

Without WWE and without Hannah Montana, what's JAKK's long term value? I don't know but there are significant risks.

But since JAKK will release earnings next Wednesday and I'm pretty sure they'll be way above expectations I'll wait for the positive news before selling.

So much time for nothing, it's a pity, but it could be worse.

Good decision, David. JAKK does not offer a clear path to a significant growth which you typically look for. A good call to sell after the earnings are out.

Hi David I know you are man of reasoning convictions and a "stronghander"... but take a look to the following article