One Guy's Investments: Annual Checkup -- MVL

Marvel Entertainment (MVL -- click to register for free RT streaming quote) has been extremely quiet since their rough conference call back in November, though it did recover reasonably quickly from their shellacking and return in short order to the current $16 range -- my average cost is about $18, so I'm slightly in the red, but not particularly concerned about it. The only big news since then is a new toy deal -- Marvel is dropping it's own Toy Biz and contracting with Hasbro beginning in 2007 to create licensed toys based on the heroes of the Marvel Universe. It's hard to say what that will mean long term -- Marvel will get a lower royalty rate, but they also reduce their risk with pretty sizeable guaranteed payments, and get the advantage of working with a major toy power who may provide stronger distribution. I'm guessing conservatively that it's probably a wash, with some upside potential. Regardless, 2006 will probably remain a very lean year for Marvel -- during this transition to Hasbro they are downplaying their toy sales forecast for the year, and they are also being quite coy about their expected revenues from the two major films that feature their characters in the next 12 months, Ghost Rider and X-Men 3. As I wrote a few months ago when Marvel hit bottom with their low forecasts for 2006, I'm comfortable holding through this year because I think they're being more conservative than they need to (as a result of having already been burned) and, more importantly, because I like their risky plan to produce their own films starting with the 2008 slate and I want to take part in the potentially higher earnings they'll see from those releases. The shares will probably move this year in sympathy with the performance of their two major films, but I think the real action -- not unlike what I foresee for Dreamworks Animation -- is coming in 2007. I'll wait.

Labels: MVL