IncrediMail: Drop in Share Price Isn't Based on Fundamentals

I already have a large position in IncrediMail (MAIL) but I could not look at this opportunity any more and stand on the sidelines. So yesterday, I bought more MAIL. I put my money where my mouth is.

I wrote in the previous post:

The market puked yesterday on news that Ofer Adler, CEO of IncrediMail (MAIL), and Yaron Adler, Board Member, both sold stock in the last month. In fact, Yaron Adler sold a lot of stock, two-thirds of his holding.

As MAIL's share price is off 20% since its peak and is off almost one dollar as of this writing, I think a little perspective is in order.

1. Yaron Adler has not been actively involved in the company for a long time. Despite being on the board, based on all the data I have collected, he is not involved. As the stock price appreciated, Yaron had a chance to take cash off the table and further disassociate from the company, and he did. Further, Yaron Adler is up for re-election as a director at the next elections (end of year, I believe). I would not expect to see him back on the board after the election.

The drop in the share price is, as far as I can tell, not based on fundamentals. I think it is based on further selling by Yaron Adler. Here is why I think that:

1. Volume in the stock is pretty high. This means someone is selling a lot. Yaron Adler started this process with around 1.25 million shares. He is the only one other than Ofer Adler with enough stock to sell in these volumes unless some big institution is unloading.
2. There seems to be a floor price of $7.50 on the sell order. Every time I try to buy at $7.50, it snaps up a bit. That was a pretty low floor to put in for someone who bought on the open market recently.
3. I checked with the company today and they are not in closed trading windows. So a board member can sell.

I know this is circumstantial and not conclusive, but with a dividend of 40 cents a share coming after it works its way through the Israeli courts, and no negative news on the business that I can see, this is my only conclusion.

Full Disclosure: Very Long MAIL

Comments

[Envoy Globa...:]

The flipside is that once Yaron is done selling, and I'm reasonably certain he is close to or already done, the stock will rebound quickly.

The sell-off obviously has nothing to do with fundamentals. MAIL's latest dividend announcement is equal to their entire income for the first half of 2009. Their policy is now to payout 50% of net income each year as a dividend, meaning that earnings for this year will be at least $0.80 per share. Though, I expect it to come in a bit higher. So excluding cash, the stock is at about 7X earnings, which is still very cheap for this type of business.

Sep 30 07:04 AM

[halamok:]

This is a very very small consumer internet company
!-instituting a dividend as high as 15% of their revenue run rate
!-Volume is 10x higher than it was just 6-9 months ago
-about 50%(?) of shares are closely held
!-1 of the venture funds was happy to sell 10% in the company @$2.60 last year
!-a board member selling out,despite being positive

It's an obvious "sell and don't buy back"...but maybe i'm just naive...
Unfortunately, the float is too small for selling this stock short.

Was Benchmark Capital involved in financing MAIL before their IPO?

Sep 30 07:43 AM

[Michael Eis...:]

Benchmark was not involved in financing Incredimail. I am a personal investor. I would have disclosed that.


On Sep 30 07:43 AM halamok wrote:

> This is a very very small consumer internet company
> !-instituting a dividend as high as 15% of their revenue run rate
>
> !-Volume is 10x higher than it was just 6-9 months ago
> -about 50%(?) of shares are closely held
> !-1 of the venture funds was happy to sell 10% in the company @$2.60
> last year
> !-a board member selling out,despite being positive
>
> It's an obvious "sell and don't buy back"...but maybe i'm just naive...
>
> Unfortunately, the float is too small for selling this stock short.
>
>
> Was Benchmark Capital involved in financing MAIL before their IPO?

Sep 30 08:04 AM

[life planning:]

I am very curious how this stock is gonna effect the sentiment in this market.

Sep 30 08:30 AM

[Envoy Globa...:]

Funny, the fact the VC sold at $2.60 last year, was exactly the reason why I bought back then.

When VC's need cash for whatever reason, and they sell long-term holdings that they are tired off, they nearly always sell at the exact bottom. It's a common buying signal. VC's dumps everything at a ridiculous valuation, you buy.

As for the dividend, they have over $25 million in cash, and they can support this dividend for years even with lower profits. Nevertheless, their dividend rate now is 50% of net profits this year. Easily covered.

How anyone views this type of dividend as a negative is beyond me. If only every publicly-traded company paid out this percentage amount in dividends every year, instead of paying executives exorbitant salaries and stealing profits from shareholders, the stock market would once again become a true investment vehicle instead of the gambling casino it has become. Bravo to MAIL management for making investing meaningful again, and doing what every public company should do, share profits with shareholders so that we don't have to rely on speculative share price gains for income.

Sep 30 11:26 AM

[Michael Eis...:]

I totally agree with this point. I love the dividend!!! totally aligns value between management and shareholders.


On Sep 30 11:26 AM Envoy Global Research wrote:

> Funny, the fact the VC sold at $2.60 last year, was exactly the reason
> why I bought back then.
>
> When VC's need cash for whatever reason, and they sell long-term
> holdings that they are tired off, they nearly always sell at the
> exact bottom. It's a common buying signal. VC's dumps everything
> at a ridiculous valuation, you buy.
>
> As for the dividend, they have over $25 million in cash, and they
> can support this dividend for years even with lower profits. Nevertheless,
> their dividend rate now is 50% of net profits this year. Easily covered.
>
>
> How anyone views this type of dividend as a negative is beyond me.
> If only every publicly-traded company paid out this percentage amount
> in dividends every year, instead of paying executives exorbitant
> salaries and stealing profits from shareholders, the stock market
> would once again become a true investment vehicle instead of the
> gambling casino it has become. Bravo to MAIL management for making
> investing meaningful again, and doing what every public company should
> do, share profits with shareholders so that we don't have to rely
> on speculative share price gains for income.

Sep 30 11:51 AM

[KDG:]

I am long MAIL - While most mail interface is based on form and function, MAIL has a great product that focuses on the aesthetics of email based communication through animation-think about this.

For example, I can run the app and when I have mail, can choose the animated graphic that will appear on my desktop to let me know I have new mail. There appear to be many nuances to this application that makes it perfect for kids (& adults) to enjoy and express creativity not an option in yahoo, gmail, or msn.

I see a company that has embraced Google ad revenue paradigms, reflected the versatility of Outlook, and put some much needed aesthetics to the email experience.

I am excited to see where Incredimail will go.

Sep 30 01:01 PM

[coloneldebu...:]

or maybe it dropped because the age of installed email clients is over. you don't need the overhead running locally on your computer if you can pawn it off on the yahoo or gmail servers.

you can talk fundamentals all you want, but this type of product is the equivalent of a land line phone. email and office suite type software is all about the cloud.

Sep 30 02:36 PM

[Michael Eis...:]

i am a big believer in the cloud but current and near term usage is very thin. MAIL has great stickiness on their client and the new version rocks for the demographic (which does not even know what cloud is).


On Sep 30 02:36 PM coloneldebugger wrote:

> or maybe it dropped because the age of installed email clients is
> over. you don't need the overhead running locally on your computer
> if you can pawn it off on the yahoo or gmail servers.
>
> you can talk fundamentals all you want, but this type of product
> is the equivalent of a land line phone. email and office suite type
> software is all about the cloud.

Sep 30 02:57 PM