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  • Turning Losses Into Profits, Maybe [View article]
    The number of registered members can't decline since it's not based on activity.

    Bankruptcy by 2016 is practically impossible. There are two ways to look at this.

    (1) If the company can grow according to current management estimates, and translating the EBITDA estimates into FCF based on the business model and working capital dynamics, I estimate that the 2015 FCF will be roughly -$10 to -$15 million (including Citrus Lane) and 2016 should be break even based on 20% revenue growth. In this "growth scenario", which is highly likely, they aren't even close to running out of cash before they can break even. The business has inherent operating leverage and it will show when the management decides that it's better to pursue profitability instead of additional growth investments to capture the market opportunity.

    (2) In the alternative scenario the company will stop growing for some reason. Perhaps there's another recession. In this case it's important to understand that the current cost structure is based on growth assumption. They invest aggressively to capture the market opportunity. If for some reason the market opportunity isn't there, they can stop investing for growth. For example, they could scale back sales and marketing investments from an aggressive growth level to a maintenance level. Perhaps this would make the company "immediately" profitable since sales and marketing represents such a large portion of the cost structure.

    As for reputation, it's true that there are complaints about the auto renewal policy. I wouldn't exactly call that predatory since it's clearly visible when subscribing and there are no problems related to unsubscribing. Additionally, according to management the company has a net promoter score of 55 which is considered excellent. They have over 400 000 Facebook likes. Perhaps most important is the reuse rate which, if I remember correctly, is over 60% for the 2012 paying family cohort and it keeps improving. Reuse means that a paying member downgrades back to being a basic (non-paying) member and then upgrades again to being a paying member.

    As for the share price which continues to decline, I'm averaging down since I think my fundamental analysis is correct and the price is even cheaper. It will take couple of years for the fundamental thesis to play out so we'll see.
    May 3, 2015. 01:57 PM | Likes Like |Link to Comment
  • Turning Losses Into Profits, Maybe [View article]
    btw, about the CEO, not that I actually have enough information to arrive at this conclusion, but I think Marcello is a good fit for the company.

    She might not be a very calculative and thorough decision maker, but she has the necessary big picture abstract understanding and other key strengths. Fully committed to the company and very energetic keeping the company busy at capturing the market opportunity. Focuses on what's best for the company over the long-term. Probably good at creating culture and getting people to give their best effort, which I think shows when comparing their site, overall concept and new initiatives against the rather bland and less dynamic Sittercity. In addition, she understands the customer base, and is capable of being the face of the company.

    Hopefully they learned a few lessons from the costly CL acquisition. If the reason behind the CL growth setback was indeed the overly promotional model of CL, that's the kind of stuff that the former CFO should have understood. Overall, I can't really say that they are bad at doing acquisitions, since their previous acquisitions have done much better. Probably the IPO money was burning too hot in their pocket this time around. But mistakes happen.
    Mar 24, 2015. 07:21 AM | Likes Like |Link to Comment
  • Turning Losses Into Profits, Maybe [View article]

    You are correct that every market has a plateau level. I doubt is near that level.

    Care needs evolve over time, and the service offering is comprehensive. Maybe you need a babysitter now and after school care for the kids later on. Perhaps you have elderly parents living on the other side of the country, and you might find the elderly care related services useful. You might get a dog at some point and need to hire a dogsitter. Maybe you want a housekeeper.

    I don’t want to get carried away here, but, as care needs evolve and the platform offers a wide variety of services, a customer relationship could in principle last for decades despite inactivity periods in between. This isn’t your “monthly active users” type of business. Childcare is the most developed segment, but the other segments are likely to gain greater share in the overall mix. Even the childcare segment keeps evolving. For example, childcare companies are increasingly hiring directly from the platform.

    Last year the company wasn’t able to get meaningful operating leverage, since they actively chose to invest aggressively to scale the platform and overall infrastructure to capture the market. So, let’s just extrapolate that and forget the 2015 outlook? The whole “economies of scale” thingy doesn’t make much sense anyway. Especially not with this business model, right?

    As for the cash flow, you are correct that if the business would stop growing for some reason, and/or if they wouldn’t get operating leverage, they would eventually run out of cash. However, as I explained in the article, I think they will grow and they will gain operating leverage. I guess we agree to disagree.

    It’s interesting that you think that the management thinks that the business is seasonal when it actually isn’t seasonal. Now, that would be funny.
    Mar 23, 2015. 06:40 PM | Likes Like |Link to Comment
  • An Online Marketplace Of 13 Million Members [View article]
    Fully answering in your comment would be a long story indeed. Knowing your previous over the top negative articles, habit of distorting facts, endlessly lengthy and numerous response comments, as well as your relentless focus on a single company that you supposedly have no position in (you're probably just trying to help?), I'm not even going to dare to attempt.

    However, I do partially agree with your comment regarding the 13 million figure, but I don't think its nearly as meaningless as you imply. I recommend considering the type of the service, the nature of customer relationship activity, and the growth pattern in the more recent years. In terms of factuality, the number of registered members is correct and probably has grown by another million by now.

    By "simply doing the math" you must refer to your financial analysis, which you so generously presented in your previous articles, about practically extrapolating current cash flow trends - including acquisitions - until they supposedly run out of cash. Surely you aren't being serious? Although, perhaps you have some people convinced, which is adequate considering your motivations. Too bad not everyone is going to fall for it.

    I recommend applying your method of financial extrapolation to every growth company. I'm surprised that you got as far as year 3 in your analysis of Seems a bit optimistic? You might also educate the current VC people sitting on the board, they must have missed the pending doom when they approved the acquisition. Live long and prosper, my friend.
    Mar 1, 2015. 07:32 AM | 1 Like Like |Link to Comment
  • An Online Marketplace Of 13 Million Members [View article]
    I chose to focus purely on the marketplace in this article. Perhaps I will write another article about the profitability and financial position of the company. However, based on my analysis, I don't think the company is even close to "going broke". With its business model characteristics and current growth estimates, achieving profitability seems very realistic within couple of years.
    Mar 1, 2015. 04:58 AM | 2 Likes Like |Link to Comment
  • Symantec's Renaissance Is On The Way [View article]
    I think you made several good arguments that are both relevant and reasonable.
    Feb 26, 2015. 10:09 AM | 1 Like Like |Link to Comment
  • Should You Care About [View article]

    Could you provide the source for Breedlove leaving the organization? Thanks.
    Sep 22, 2014. 06:10 PM | Likes Like |Link to Comment
  • More Reasons To Short Angie's List [View article]
    You said "That brings us to the ultimate reason for the short: the business model is flawed and it cannot sustain growth in revenues and users without dramatically increasing costs each quarter."

    While the costs are obviously also increasing, could you elaborate on the business model related reasons and logic behind this statement? In other words, why exactly would they be unable to gain significant operational leverage over time?

    Sep 20, 2014. 09:13 AM | Likes Like |Link to Comment
  • Where Dollars And Portfolio Managers' Track Records Go To Die [View article]
    Disciplined Contrarian,

    While assessing the company, I have been struggling with the question of what is the sustainable number of US child care customers for CRCM and how could one calculate an approximation of plateau level annual revenue for this line of business. Would you have any ideas about how to approach this question? Thanks.
    Aug 7, 2014. 08:25 AM | Likes Like |Link to Comment
  • Apollo May Be The Government's Next Victim In Its Aggressive Oversight Of Financial Aid Recipients [View article]
    It's rather easy to tell one side of a well-known story, and much harder to take into account both the negatives and the positives, especially in relation to the price of the company.
    Jul 29, 2014. 08:15 AM | 1 Like Like |Link to Comment
  • Staples: Why Lousy Companies With Great Managements Are Still Lousy [View article]
    Many good points in your article. You wrote that "Sales on fell around 8% in 2013". However, in the quarterly releases the growth rates mentioned for are 3% in Q1, 3% in Q2, 3% in Q3 and 1% in Q4 or 10% if 53rd week and currency exchange rates are excluded from the Q4 numbers.
    Apr 3, 2014. 02:30 PM | 1 Like Like |Link to Comment
  • Applied Materials Is Substantially Overvalued [View article]
    You said that you don't want to use earnings or cash flows because of the cyclicality/volatility. You also mentioned that the return on equity is lower than the cost of equity. How did you calculate the "return" part of ROE when earnings are cyclical?

    If you are trying to adjust for cyclicality, why have you selected a time period from 2009 to 2013 instead of a full cycle? For example, from 2003 to 2007, the average P/B was well above 3.50.

    If the correct P/B should be 0.57 as you say, what then would be the cyclically adjusted earnings/cash flow yield?
    Dec 26, 2013. 11:51 AM | 2 Likes Like |Link to Comment
  • Both Apollo And Career Education Shares Went Parabolic This Week. Which One To Short? [View article]
    Fund Manager,

    Instead of current trends continuing to infinity, could there be inflections in some negative trends like enrollment and high youth unemployment? Could the market be predicting an inflection in advance after 11 quarters of declining enrollment?

    What do you think is the value of APOL? To what extent then has the market already priced in the obvious problems that you mentioned?
    Oct 26, 2013. 02:08 PM | 3 Likes Like |Link to Comment
  • Office 365 Free For Students Is A Big Deal [View article]
    In the latest 10-K, pages 6-7:

    "Office, comprising mainly the core Office product set, Office 365, SharePoint, Exchange, and Lync"
    "Office [...] generates over 90% of MBD revenue"

    Dynamics is the other component of MBD.
    Oct 17, 2013. 07:43 AM | Likes Like |Link to Comment
  • Applied Materials Loses Top Spot In Solar Equipment Market [View article]
    Couple of things to note:

    You make it sound as if AMAT had acquired Varian because of its solar tehnology, which quite cleary isn't the case.

    In your article you write: "Applied Materials passed on an opportunity to invest in privately held SolarPA" and make it sound as if this would have been a major opportunity that AMAT missed.

    At the end of your profile, you describe yourself in the following way: "Also in the solar area, he is CEO of SolarPA".

    So, basically you're the CEO of a company that AMAT didn't invest in? This could also be part of the reason why your latest two articles have been perhaps overly negative on AMAT.
    Jun 12, 2013. 03:36 PM | 2 Likes Like |Link to Comment