4Kids Entertainment (NYSE: KDE), a producer of children's content that engages distribution and licensing opportunities, has not been a great stock idea. Although shares of the company have perked up as of late, the longer-term trend hasn't been so encouraging. Let's see if the first-quarter numbers might change your mind.
Well, I don't know about your mind, but my mind so far hasn't been changed. Revenues declined by 32%. There was a net loss of 15 cents per diluted share. Now, granted, that was far better than the net loss last year, which calculated out to 48 cents per diluted share. I give the company credit for narrowing the loss, but something tells me that I don't necessarily want to invest hard-earned money in a business that is based on the fickle nature of a very young target audience.
As an example, take a look at what the release said about the Chaotic trading card property. In last year's similar quarter, revenues for that line were $2.4 million. In Q1 of this year, 4Kids generated sales of only $0.4 million from the cards. Yes, money is tight, and parents don't want to spend discretionary dollars on items that are not categorized as absolute necessities. But I have a feeling that the Chaotic cards are simply not as popular.
And that's the problem for 4Kids. For the stock to work, the company has to have some fads in operation. Right now, there doesn't appear to be any sort of catalyst in that regard to power the shares higher. Sure, according to the conference call transcript over at Seeking Alpha, software publisher Activision Blizzard (NASDAQ: ATVI) will be releasing a game based on the Chaotic brand later this year, and a deal with Time Warner's (NYSE: TWX) Cartoon Network will hopefully promote the cards as well. In addition, the Dinosaur King property is said to be expanding in popularity in certain parts of the world. And 4Kids may benefit from the licensing potential of a new Teenage Mutant Ninja Turtles movie due out a couple years from now.
But these bits of information do not move me to buy the stock. Even though management made sure to mention that results were affected by the termination of an agreement with News Corp.'s (NYSE: NWS) Fox asset, I can't say I'm impressed with this company's current business model. I think 4Kids is a very interesting entity. I'll continue to keep tabs on it, but I don't want to speculate on these extremely low-priced shares at this time.
Disclosure: I own Activision Blizzard; positions can change without notice.
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