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Lenny Grover

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  • USA Technologies Preferred Stock: Bet On A Buyout [View article]
    This was never a growth proposition. It appears that, even in a modest downside scenario, the preferred stock would be entirely in the money. If liquidity pressures force a sale sooner rather than later, that could actually benefit the preferred shareholders (from an IRR perspective, see the article above).

    This is a case of being able to buy ~$1.75 of liquidation preference for $1. The most likely downside risk to the position described in the article is that the company never puts itself up for sale, with a secondary risk being that the business declines in value to the point where even the preferred stock cannot recover its liquidation preference.
    Aug 18 10:27 PM | Likes Like |Link to Comment
  • Consumer Dissatisfaction And Disruption Threaten 'Too Big To Fail' Banks [View article]

    The analysis looks at "complaint share" relative to market share. Take a look at the tables in the analysis section to see how the analysis compares the anticipated number of complaints (based on market share) to the actual number of complaints. By that metric, the banks suffer more complaints than one would expect based on the relative sizes of their customer bases.
    Jun 2 12:19 PM | Likes Like |Link to Comment
  • Looming Public Pension Crisis Is Bigger Than It Appears [View article]
    It appears that many of those pension plans were relatively recent at the time. Thus, while the plans were underwater from an actuarial perspective, during that time, they were not facing as dire cash flow issues as we do with today's more mature plans in crisis. Also, the liabilities were smaller relative to the states' tax base and borrowing capacity. See page 36-37 at (

    By 1944, US GDP was at twice the level as 1929 (as per the table at That reflects far more rapid GDP growth than is likely between 2014-2030. We are unlikely to "grow our way out" of a hole equivalent to 50% of the aggregate annual budgets of all 50 states.

    To avert the looming disaster, there will have to be give and take among all constituencies. And, the sooner the better.
    May 31 10:47 PM | Likes Like |Link to Comment
  • Looming Public Pension Crisis Is Bigger Than It Appears [View article]
    "Long-term" is defined in this analysis as the nine year period between the 2002 - 2010 fiscal years. There are data sources, such as those used in this article, that aggregate data across many of the plans over that period. Longer term returns are not as readily available for plan-by-plan comparison. The MOSERS blog acknowledges that they reduced their future returns assumption, likely as a result of the more recent underperformance.

    I find it funny that they implicitly accuse me of "spew[ing] volumes of misinformation" without even bothering to read the article to see how the long-term (9 year) estimated returns rates were calculated.

    The time period ~15-30 years ago (1987 - 2000) was a historical anomaly. It was the longest bull market in history, by far, and saw a tremendous run-up in stock prices (582% gain in S&P500 over the period) ( Of course, including the longest bull market in history in your calculation will boost your reported annualized returns. The relevant question is whether that is representative of what future performance will look like.

    I just downloaded the MOSERS 2013 Annual Actuarial Report from their website. As of June 30, 2013, their larger MSP plan had "actuarial assets" (see description above) of $8.1B relative to a NPV of liabilities of $11.1B, a difference of $3B. According to their own calculations, the plan was only 72.7% funded. That is not the fault of the plan managers, but speaks to the "sustainability" of the plan, even under their assumptions.

    I'm sure they are trying to do the best job they can, under the circumstances.
    May 31 05:31 PM | 1 Like Like |Link to Comment
  • Looming Public Pension Crisis Is Bigger Than It Appears [View article]
    Long-term muni investors face two significant risks, in my opinion:

    1) Interest rate risk (which I didn't really address in this article)
    2) Massive accrued liabilities that will cause somebody to be left holding the bag

    Do you feel that you are adequately compensated for those risks with a ~3.39% yield?

    Your point about historical default rates is well-stated. That is why the CDS premiums for munis are so low. But, let's not forget that the default rate on triple-A rated sub-prime MBS tranches was also incredibly low...until 2008 hit and it wasn't. Backward-looking data is only so useful when trying to predict the future--particularly when circumstances have fundamentally changed.

    It is not clear who will be left standing (bondholders, taxpayers, or public sector employees) when the music stops. But, it is clear that there aren't enough chairs! That seems like a lot of risk to take on for a ~3.39% yield.
    May 27 02:42 PM | 3 Likes Like |Link to Comment
  • Looming Public Pension Crisis Is Bigger Than It Appears [View article]
    I do not have data beyond those in the two data sets that I referenced. From the existing data, it appears that returns expectations were too optimistic; perhaps returns expectations should be adjusted annually based on trailing XX years' actual returns. Also, the practice of "asset smoothing" should be revisited. States should err on the conservative side when presenting these reports and ensure that the market value of assets at each period end (even after a period of low returns) is much closer to the actuarial liabilities.
    May 27 02:33 PM | Likes Like |Link to Comment
  • Looming Public Pension Crisis Is Bigger Than It Appears [View article]

    Taxpayers, and their elected officials, over an extended multi-year period, decided to promise benefits to state and municipal employees while simultaneously refusing to fully fund the plans to ensure that they would be able to make good on those promises. Like the Arnold Foundation and other special interest groups, you are attempting to argue that budgets should be balanced purely on the backs of public sector retirees (and future retirees). Meanwhile, the public sector unions continue to refuse to make concessions on benefits for which there simply is not enough money (at this point) to go around.

    The unreasonable special interest groups I was referring to are opposed to these types of balanced arbitration processes that give unions a seat at the table. They believe in working with state legislatures to unilaterally reduce benefits for retirees and future retirees (as in Rhode Island). That is unfair to retirees and state employees.

    The point of the sentence you quoted is that I believe both sides are being unreasonable. If I were Governor of one of these troubled states, I would immediately initiate and oversee an arbitration process between union representatives and designated representatives who can be effective advocates for state taxpayers. I would reserve, and give the legislature, veto rights over an unfair deal, which could force both sides back into negotiations. Finding a balanced way to create an appropriate sense of urgency on both sides would be the hardest part. "Splitting the baby" in an impasse scenario didn't work at the Federal level, with respect to the sequester, and Federal lawmakers were willing to delay past arbitrary "fiscal cliff" deadlines.

    Instead of criticizing the policemen, teachers, and other public sector employees that you seem willing to throw under the bus without any consideration, how about encouraging affected states to create a framework for both sides to come to the table and problem solve together.
    May 27 02:24 PM | 3 Likes Like |Link to Comment
  • Luby's: Undervalued Turnaround Play With Balance Sheet Stronger Than It Looks [View article]

    The company's market cap is over $150M, making $118k less than 0.1% of the outstanding shares. $118k is a lot of money, but 20,000 shares (or even 74,000 shares) would still be presented as part of the "other" line of the company's cap table.

    I only get excited when somebody (institution or insider) steps up (or back) to a meaningful extent from the perspective of the company. For example, one of the triggers that caused me to write my negative piece on FUEL when I did was that insiders and venture investors sold ~$180+M in a secondary offering by a ~$2B company. Now, that was a stampede for the exits!
    Apr 24 01:59 PM | 2 Likes Like |Link to Comment
  • Luby's: Undervalued Turnaround Play With Balance Sheet Stronger Than It Looks [View article]
    You make a valid point. However, this reminds me of another stock that I purchased under similar circumstances (BTN), and it turned out well. In that case, a very undervalued company sitting on a huge pile of cash was telegraphing an intention to use the cash to make acquisitions to spur "growth." From a capital allocation standpoint, it didn't make sense, and the valuation was depressed as a result. One (large) shareholders had requested a buyback and another later recommended a sale process. The worst case failed to materialize and the stock appreciated significantly.

    Like Luby's, BTN's management seemed like very capable operators but had limited or no experience with financial management or financial engineering. Given the amount of value at stake here, I do not think that Luby's management, particularly given their alignment with shareholders, will put up too much of a fight if a private equity firm or activist shows up. Furthermore, there seems like enough value at stake, at this point, that motivated investors/buyers should eventually show up.
    Apr 23 11:09 PM | Likes Like |Link to Comment
  • Luby's: Undervalued Turnaround Play With Balance Sheet Stronger Than It Looks [View article]
    I don't generally care about relatively small insider buys. There are a lot of people who follow insider purchases under the premise that it's a positive signal for short-term performance. I have even seen a quantitative analysis that validates it as such a factor (

    My outlook is more long-term, though. This company is substantially undervalued at the moment. Eventually a PE firm or activist will unlock a lot of value here and, barring a big move, I would like to be along for the ride or taken out at a substantial premium.
    Apr 23 10:49 PM | Likes Like |Link to Comment
  • Luby's: Undervalued Turnaround Play With Balance Sheet Stronger Than It Looks [View article]
    Wow, that was a long time ago (2007), but the premise is still sound. To be honest, I am surprised that Luby's has not come up on some middle-market private equity firm's radar yet. This looks like some very enticing buyout shop bait.
    Apr 23 10:39 PM | Likes Like |Link to Comment
  • Travelzoo: An Undervalued Internet Company [View article]
    The link to page 17 of the shareholder presentation would have been a good addition to the original article. However, I looked at SimilarWeb traffic trends for,, and prior to writing the article. TravelZoo's traffic has not trended in lockstep with their competition--they seem to be experiencing a slight loss in web "visitor share."

    The valuation/visitor comparison you provided is also misleading because Priceline has multiple popular branded web properties whose traffic numbers would need to be summed to produce a fair comparison. Also, European traffic is important to all three businesses and that seems to be under-weighted, since the source you provided use Quantcast and Compete US-only traffic stats as two of the three inputs when computing their unique visitor estimates.

    What is far more interesting, in my opinion, is their mobile app. Applying a similar metric as your valuation per web unique visitor to Android/iPhone downloads might show TravelZoo in an even more favorable light. Audience is shifting from desktop/laptop to mobile/tablet and from web to apps. Travelzoo's disproportionate share of mobile app downloads relative to their valuation bodes well for their future relative performance.

    As a former Internet advertising/marketing guy who sometimes still dabbles in the field, I like traffic monetization cases. The Kayak comparison is interesting to me because SimilarWeb reports that gets a comparable percentage of its traffic from direct/type-in navigation. That can sometimes be a useful proxy for the relative value of "brand value/recognition" and arbitrage or other less sustainable traffic sources. It does not appear that TravelZoo is overly Google-dependent (like Demand Media) for its traffic, nor is it entirely reliant on e-mail the way that Groupon was early on. Instead, its traffic profile/distribution is comparable to other leading travel sites like Kayak (albeit with fewer visitors and a lower monetization rate).
    Apr 22 03:49 PM | 1 Like Like |Link to Comment
  • Why Rocket Fuel Is A Very Risky Bet, Even For A DSP Bull [View article]
    I'll admit that I don't really have an opinion on Sizmek (formerly a division on DG FastChannel) yet. While I thought Peer39 was an interesting value-buy in 2012, the rest of the offerings do not really impress me. It looks like DG cobbled together a "one-stop shop" DSP ad tech platform from various assets that they had acquired over the last few years, and sold the legacy business (paying off debt in the process) to refocus on ad-tech with a well-capitalized debt-free newco.

    To be honest, I hadn't given any thought at all to DG in a very long time. I'm adding Sizmek to my watch-list as a potential "dark-horse," but an $18 price would imply a >$400M market cap. I like that they have positive operating income for 2013, and are a tech provider to agencies rather than an arbitrageur. But, I might be a buyer only at a small fraction of even the current ~$13 price.

    The space is very exciting, but, in my opinion, the better ad-tech companies in the space are either still private (AppNexus, Media Math, eXelate, etc.) or have already been acquired (AdMeld and DoubleClick exchange by Google, TargusInfo by Neustar, BlueKai by Oracle, etc.). Public market investors are left with a poor selection today, in my opinion.
    Mar 3 03:11 PM | 1 Like Like |Link to Comment
  • Why Rocket Fuel Is A Very Risky Bet, Even For A DSP Bull [View article]
    The focus of the article was on FUEL, not CRTO (though CRTO uses similar arbitrage pricing). FUEL is roughly at the level it was as of market close on Feb 3 (just before the article came out) while the market indexes are all up significantly since that time . You would have been better in an index fund than in FUEL.

    My outlook is longer term, however. This is a very interesting space but I still believe that FUEL margins are likely to contract materially over the long term. That will be the real test, not the short term gyrations of a volatile stock.

    I am sorry that you missed out on the gains in CRTO, though.

    (I fixed the Yahoo link that didn't paste properly initially)
    Mar 3 09:40 AM | Likes Like |Link to Comment
  • Why Rocket Fuel Is A Very Risky Bet, Even For A DSP Bull [View article]
    I agree with aow's comment above. The market is still early in its development and margins (as a % of ad spend) are abnormally high when compared with more mature sub-segments of the online advertising market (i.e. search marketing tech-enabled agencies, etc.).

    As their competitive cohort shifts from what's been done in the past to the other top-tier DSPs, I do not think that 40+% effective fees as a % of ad spend are sustainable. Also, arbitrage opportunities are transient by their nature and the arbitrage spread will close over time as competition on the RTB platforms heat up.

    I think there is a lot of top-line growth left in the DSP space. The question is how the competitive environment environment changes and what that means for the overall margin opportunity for Rocket Fuel.
    Feb 21 10:57 AM | Likes Like |Link to Comment