IDG Books: Investment Not for Dummies

In the mid 1980s, John Kilchullen was in a bookstore in New York. A
customer was looking for a book on the DOS operating system and asked a
clerk if there was a version for dummies.

By 1990, he and three others decided to establish
IDG Books . Of course,
the first book was DOS For Dummies. Interestingly enough, there was much
criticism of the concept. After all, it seemed to, well, dummy-down
material. It was insulting.

But customers had a different opinion. They loved the books.

The Dummies brand is recognized across the world, with over 400 titles with
75 million books in print in 31 languages. In fact, the company has other
strong brands. These include Cliff’s Notes, Frommer’s, Betty Crocker’s,
Webster’s New World dictionaries, and Weight Watchers.

No doubt, IDG Books has been leveraging its brand. For example, the company
recently signed an alliance with Travelocity.com, to provide travel content
(from the 250 Frommer’s books). Travelocity has 19 million visitors.

The extensive product line has been generating substantial revenues. In the
past quarter, revenues were $55.2 million, which was up 33 percent from the
same period a year ago. Net income was $2.55 million.

The company has been making strong moves to go digital. One deal is with
iUniverse, so as to convert top-selling books into electronic formats. The
books will also be enabled for print-on-demand technologies.

But perhaps the most significant deal is the purchase of Hungry Minds. A
privately-held corporation, Hungry Minds is a leader in e-learning
courseware (there are over 17,000 courses). Actually, the corporate
training market is huge, with $63 billion spent in 1999. So far, e-learning
accounts for $1.1 billion and should reach $11.4 billion by 2003.

Yet, the stock price for IDG Books has been dismal. It is trading at 8-7/8
(the 52 week range is 6-5/8 to 19). The market cap is $131.3 million and
the PE ratio is 10. By and large, it seems like a cheap way to buy great
brands, as well as strong Internet assets.

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