Let me admit right up front that I know next to nothing about entertainment licensor 4Kids Entertainment's (NYSE:KDE) stars of the moment (Yu-Gi-Oh!) and just a little more than nothing about its stars of old (Pokemon, Cabbage Patch, and Teenage Mutant Ninja Turtles). Haven't watched any of the cartoons. Never played with the dolls. Don't intend to do either. And our only child is way too young to be forcing me to learn anything about any of the above. Thank goodness.
The closest exposure I have had to 4Kids' products was when a well-meaning but apparently less-well-informed friend of the family gifted our young daughter a huge, yellow, befanged monstrosity of a Pokemon character on the occasion of her birth (our daughter's -- I have no clue whether the monster is a "her" or a "him" and no desire to flip it over and check). This creature was so frightening that, to be honest, rather than pass it along to our daughter, I shoved it into a closet immediately, where he/she/it (the monster this time) has sat ever since.
Frightening as the toy was, 4Kids' financial performance last quarter was even scarier. Revenues declined 5.5% over the second quarter of 2003; earnings were down 46%. (On the other hand, basic shares outstanding also went down -- by 2% -- because of buybacks.).
Granted, from a slightly longer-term perspective, things weren't quite as bad. Over the first half of 2004, 4Kids actually racked up a small increase in revenue; still, earnings were down 21% in comparison with the first half of 2003.
For all the bad news from this quarter, 4Kids' management actually sounded pretty upbeat. The company claims that both its Teenage Mutant Ninja Turtles and Pokemon properties are enjoying a resurgence, that its Cabbage Patch dolls will soon do likewise, and that the release of Time Warner's (NYSE:TWX) first Yu-Gi-Oh! movie (released Friday, incidentally) will also help to boost 4Kids' bottom line for 2004. Also, 4Kids' new Winx Club property is now being broadcast on Fox's (NYSE:FOX) FoxBox and being turned into a toy line developed by Mattel (NYSE:MAT).
Add it all up, and 4Kids looks ripe for a turnaround. Even better, last week it dropped right into the middle of the results on the deep value screener I described last month in Screening for Friends. As a result, for all I fear the yellow Pokemon-ster, its creator now has me intrigued. Tune in back here on Fool.com on Wednesday, and we'll take a look at whether 4Kids has the kinds of deep value attributes that could mark it as a small-cap hidden gem.
Fool contributor Rich Smith owns no shares in any company mentioned in this article.
