Seeking Alpha
Long/short equity, contrarian, value, special situations
Profile| Send Message| ()  

OWW is in the online travel industry and competes with Priceline and Expedia. The stock is up 123% year to date. While some may argue that it is a turnaround story and make a bullish case, I happen to be extremely skeptical. The company has revised its own estimates of revenues or EBITDA downwards three times and yet failed to meet those estimates. The street was expecting a downward revised EPS of -0.06 while the company posted an EPS of -0.11 on an equivalent measure. There were only a couple of analysts even present on the conference call. This company is pulling earnings and assets out of nowhere and Wall Street is either ignoring the bad news or simply speculating on the stock. This is unsustainable and is likely to end badly for investors who bought the stock on a false promise of growth and profits. At best, it is a highly speculative trade.

The company hasn't turned an annual profit since 2006. It uses EBITDA and Adjusted EBITDA (Non GAAP) as the most accurate measure for its operations, so that lost/unrealized revenues as well accumulated expenses can be papered away.

In the last 5 years, the company revenues have wandered between 870 million and 770 million with no real trend. And the net income has wandered from -300 million to well -300 million.

But the real numbers are the Accounts Receivables and Accounts Payable. The AR (Q1,2013) is very high at 49% for the quarterly revenues. Sure the business cycles can be longer than quarters, but it still seems quite high. Meanwhile OWW has only 1% of AR as allowance for doubtful accounts. This is extremely aggressive for any company.

The AP has always been over 2 times the actual operating expenses and in the most recent quarter it hit 3 times the expenses. Of particular interest is the "Accrued Merchant Payable" which is twice the actual operating expenses. I fail to understand who these merchants are who are willing to supply goods/services to OWW with no chance of any payment in full.

With long term debt of over $430 million, the only long term assets OWW has to generate cash and pay it back is "goodwill" at $345 million and Deferred Tax Assets of $152 million. Good luck creditors. The financials do not appear sustainable in the long run making it difficult to value the stock. And If earnings are the key to creating value, then shareholders should not expect any significant stock appreciation. Sure, OWW can offset their profits in the coming quarters by the deferred tax assets and generate some cash in the short term by reducing taxes, but the company will not be able to sustain its operations, unless they are able to continue to get financing from their trade partners.

Just when it was about to post a loss of 11 cents per share, it succeeded in offsetting it by "Valuation allowance of deferred tax assets". It is very hard to be optimistic about the company and the stock.

Source: OWW quarterly financial statements, annual reports and Yahoo Finance.

March 31, 2011June 30, 2011September 30, 2011December 31, 2011March 31, 2012June 30, 2012September 30, 2012December 31, 2012March 31, 2013
AR65,02072,18362,48162,37779,19880,00884,54275,78999,244
Revenues$ 184,923$ 201,826$ 202,924$ 177,146$ 189,779$ 200,977$ 198,303$ 189,737$ 202,860
AR/Revenues0.3516058030.3576496590.3079034520.3521219780.4173169840.3980953040.4263273880.3994423860.489224095
Total Current Liabilities529048531489475068453763572912538787507484473424655826
Op Expenses185555181989180064214500185835186105173393495388205670
CL/ OP Expenses2.8511654232.9204457412.6383285942.1154452213.082906882.8950699872.9267848180.9556630363.188729518
Accrued Merchant Payable316,419311,419268,845238,694348,555310,638296,026268,589417,521
Accrued Merchant payable/Operating Expenses1.7052572011.7111968311.493052471.1127925411.8756154651.669154511.7072546180.542179062.030052998
Source: Orbitz Worldwide - Fair Value Unknown