Bidz.com Share Buyback Fails to Excite Investors

On Wednesdsay, Bidz.com (BIDZ), an online auctioneer of jewelry, announced that it had repurchased 100,000 shares of its common stock in the open market for a total purchase price of $886,000, or about .40% of the company's 24.6 million shares outstanding, at an average price of $8.86. The buyback is part of a buyback program, authorized in June 2007, that allows the company to repurchase up to $5 million worth of stock through the open market. In a press release to the investment community, Bidz.com CEO David Zinberg said that,

The share repurchase underscores our confidence in the strength of our business model and our commitment to enhancing stockholder value.

The news failed bolster the stock price on Wednesday as Bidz.com shares rose slightly by $.06, or .67%, to $9.03 on very light volume of 355,432 shares compared to daily average volume of 1.1 million shares. The stock lost more than half its value since November 26, the day it hit a new 52-week high of $22.50, and has failed to rebound since Citron Research released a negative report on the company a few days later.

The research report alleges that the company engages in shill bidding, asserts that inventory levels are rising at least 300 percent higher than the company's revenue run rate, and claims that the CEO is compensated 30,000 shares each month. The company has responded by saying that the allegations are untrue, but admits that Saied Aframian, manager of Bidz.com supplier LA Jewelry and owner of about 5% of Bidz.com shares, has previously had a run-in with the law.

To combat the public backlash from the report, the company released guidance that sees revenue of $56 million to $58 million in the fourth quarter, '07 revenue of $180 million to $182 million, and '08 revenue of $225 million to $235 million, and EPS of $0.47- $0.51 a share. But apparently, neither the refutation of the allegations, nor the positive guidance, was enough to quell investor doubts. Wednesday's tepid reaction to the buyback is not a good sign, and combined with management credibility trust issues, is just not a good combination for the stock going forward.