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Mike Arnold, CFA

 
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  • Vivendi: Flush With Cash And Focused On Media/Content
     • Yesterday, 7:05 AM ATVI, DWA, LGF 4 Comments

    Summary

    • Vivendi is flush with cash and owns a 5% stake in music streaming service, Spotify. The company just transferred its 13% Beats stake to Apple for $409 million.
    • Vivendi is now a more focused business in media/content - Universal Music and Canal Plus -- after shedding its telecom assets, including recent bidding war for GVT.
    • The company could receive a multiple re-rating in line with a global media peer group.
  • Update: Contract Wins Continue For Radcom
    Wed, Aug. 27 RDCM 3 Comments

    Summary

    • Two contract wins with Tier 1 Latin America telcos provides tangible evidence of new use cases for MaveriQ - wireline network customer experience management.
    • This confirms my investment thesis, which is driven by an evolving business model and market adoption of MaveriQ. The new use case increases the addressable market.
    • Management is guiding to "significant growth" year-over-year in 2014; the contract win adds to Radcom's growing backlog.
  • Radcom: Product Success And Operating Leverage Will Drive Upside
     • Fri, Aug. 15 RDCM 3 Comments

    Summary

    • Radcom is at the cusp of significant earnings growth due to three key variables: (1) revenue growth; (2) gross margin expansion; and (3) fixed operating expenses.
    • A transition to a software-driven model via new product offering - MaveriQ - is rapidly expanding gross margins coupled with well-contained, fixed operating expenses.
    • The Q2 earnings release and conference call confirmed points (2) and (3) above. Recently announced contract wins should provide the last leg of the value thesis, revenue growth.
    • Radcom's share structure includes only ~8 million shares, about 40% of which are held by two insiders, Zohar and Yehuda Zisapel. Place limit orders, expect volatility.
  • Update: Bitcoin To Drive Profitable Growth At Overstock.com
    Fri, Aug. 15 OSTK Comment!

    Summary

    • Bitcoin should generate $8 million in top line revenue for Overstock.com and 4 cents EPS in 2014.
    • Financially speaking, Bitcoin doesn't drive a lot of current value for shareholders but helps build Overstock's brand and customer base.
    • Taken as a whole, the Bitcoin decision provides tangible evidence that Overstock managers are forward-thinking and can execute well. Overstock is skating to where the puck is going to be.
  • Overstock.com: A High Conviction Idea With 150% Upside
     • Fri, Aug. 8 AMZN, TJX, OSTK 57 Comments

    Summary

    • Overstock.com is trading at a wide discount to my estimate of private market value.
    • Management is introducing higher-margin service offerings such as Supplier Oasis and an insurance broker which should lead to incremental margin expansion.
    • Clear tailwinds in eCommerce, a capital-light operating model and optionality in terms of monetizing developed in-house software and accretive capital allocation provide downside protection and significant upside potential.
  • Update: Rosetta Stone Earnings
    Wed, Aug. 6 RST 4 Comments

    Summary

    • Rosetta Stone's Education & Enterprise ("E&E") business - its most significant value driver - continues to gain traction via record SaaS bookings.
    • Rosetta Stone's business is seasonal, with the second half typically generating a significant portion of yearly EBITDA and cash. The company expects ~$70 million net cash at year-end.
    • At the current $190 million valuation, Rosetta Stone continues to be an attractive risk/reward investment while it continues its business model transformation.
  • Update: Dream Unlimited Earnings
    Wed, Jul. 30 DRUNF 7 Comments

    Summary

    • Dream's land and real estate revenue streams remain lumpy, but contain a lot of dormant value.
    • Expanded asset management's fee-earning asset base via new vehicle, Dream Alternatives continues to drive significant value for Dream shareholders.
    • The investment thesis remains intact: despite the lumpy results, investors are advised to lengthen their time horizon to 2016 when Dream expects to earn $250 million pre-tax.
  • Pilgrim Foods Offers A Rich Premium For Hillshire Brands
       • Thu, May. 29 PPC, HSH 26 Comments

    Summary

    • Pilgrim Foods offers $45/share to acquire Hillshire Brands, implying a $6.4 billion enterprise value.
    • The proposed deal would require Hillshire to renege on its obligation to buy Pinnacle Foods. Pilgrim would pick up the $163 million breakup fee.
    • A Pilgrim / Hillshire tie-up would create sales and cost synergies, and Pilgrim is backed by JBS SA who owns ~75% of its equity.
  • Should Rosetta Stone Be Taken Private?
       • Thu, May. 22 RST 12 Comments

    Summary

    • Rosetta Stone trades at a distressed valuation.
    • Investors are missing the hidden value from a growing subscription-based revenue model.
    • With recent M&A activity in the education software space, Rosetta Stone could become a buyout target.
  • For Dream, Lengthen Your Time Horizon
       • Wed, May. 21 DRUNF 5 Comments

    Summary

    • Dream remains mispriced due to a plethora of classic market inefficiencies.
    • Rebranding efforts could shine additional light on Dream's value proposition.
    • Management is guiding to $250 million in pretax earnings in 2016; investors can buy that earnings stream for 4x at the current price.
    • Macroeconomic risk is the general consensus in Canada's real estate market, but Dream's asset management arm acts as a natural hedge against lower real estate prices.
  • Vitacost Remains A Go-Private Candidate
       • Wed, May. 21 AMZN, GNC, VSI 22 Comments

    Summary

    • Vitacost posts record quarterly revenue in Q1 -- now running at a $100 million+ quarterly revenue run rate.
    • GAAP profits remain elusive although growing sales should help Vitacost achieve profitability, potentially in 2015.
    • TV advertising is elevating current sales & marketing spend, but raising brand awareness.
    • Vitacost remains a compelling go private candidate as competitors aggressively attempt to build out an "omni-sales channel platform." Vitacost trades well below comparable go private transactions.
  • Vitamin Shoppe Zeroes In On ECommerce Growth
       • Tue, May. 20 VITC, VSI 1 Comment

    Summary

    • Vitamin Shoppe reports solid Q1 numbers driven by same-store sales and eCommerce growth.
    • Management is guiding to mid-single digit revenue growth, which appears conservative given the Q1 performance and the potential for accretive acquisitions.
    • Vitamin Shoppe is on solid financial footing with $88 million in net cash and a number of ways to remunerate shareholders -- acquisitions, buybacks or dividends.
  • Identiv Continues Turnaround, Verizon Partnership Provides Optionality
       • Tue, May. 20 VZ, INVE 13 Comments

    Summary

    • Identiv announces key partnerships with Verizon Enterprise and the "largest security distributor in the United States" to drive future growth.
    • While most restructuring activities are complete and non-core assets sold, there will continue to be noise in the operating expenses through 2014.
    • Secures $20-million credit facility with Opus Bank, which will allow Identiv to retire high-interest and cumbersome debt, and provide financial flexibility to redouble efforts on driving profitable growth.
    • Softness in Identiv's highest-margin segment masks growth of other business segments, including "Internet of Things" solutions, which grew 36% year-over-year.
  • The Street Starts To Believe In Intelsat
       • Sat, May. 3 I 1 Comment

    Summary

    • A year after Intelsat's busted IPO, the company turns a GAAP profit.
    • Significant financial and operating leverage allows for additional revenue to lead to high incremental profit margins.
    • Substantial debt restructuring is beginning to bear fruit with cash interest costs down $80 million, allowing management to deliver more free cash flow to shareholders.
    • Now that the company is profitable, investor interest may return to Intelsat.
  • Town Sports Gets Clubbed Again
       • Sat, May. 3 CLUB 10 Comments

    Summary

    • The market is pricing in serious declines in CLUB's fundamentals.
    • While competitive risk is salient, CLUB is well-capitalized and entrenched in various markets to help combat threat of competition.
    • Various value unlocking catalysts are on the horizon, including optimizing the club count and selling valuable real estate.
  • Elevated R&D Spend Masks Earnings Power At Image Sensing Systems
       • Sat, May. 3 ISNS 44 Comments

    Summary

    • Consolidated net sales down 6% year-over-year; extreme weather conditions partly to blame.
    • GAAP earnings down, as royalty income stream is being reinvested in R&D for growth opportunities in software solutions -- Safe Cities.
    • GAAP earnings pressured by continued professional services expenses with respect to an ongoing, albeit winding down, FCPA investigation and non-cash charges.
  • Terex Needs A Jolt Of Growth To Head Higher
       • Fri, May. 2 TEX 2 Comments

    Summary

    • Terex Q1 growth stalls, but backlog indicates a return to growth in the second half of 2014.
    • Original 2015 operating performance goals look overly optimistic, but Terex is making progress.
    • Macroeconomic and competitive risk remains salient in Terex' crane business which must return to a sustainable growth trajectory for shares to go higher.
    • Shares look extended at $42 per share, but could be valued higher in 2015 if management continues to expand margins and EPS.
  • Hyatt Hotels Shows Off Operating Leverage, Evolving To A More Asset-Light Franchise Model
       • Thu, May. 1 H Comment!

    Summary

    • Hyatt Hotels' operating model contains significant operating leverage; Q1 results confirm that.
    • A growing stream of recurring management and franchisee fees provide revenue visibility.
    • Margin expansion, asset recycling, capital allocation and growing hotel counts provide a number of ways to create long-term, sustainable shareholder value.
  • A Mixed Bag And Hopeful Outlook At Navigant
       • Thu, May. 1 NCI Comment!

    Summary

    • Navigant reported a difficult Q1 with revenue declines across 3 of its operating segments, but expects growth to accelerate in the latter half of 2014.
    • Navigant looks to build its recurring revenue stream which could bolster its valuation.
    • Navigant remains in two regulatory sweet spots - Healthcare and Energy - but needs to develop long-term, recurring revenue streams to create sustained shareholder value.
  • NCR Corp.'s Business Model Continues To Evolve
       • Thu, May. 1 NCR 7 Comments

    Summary

    • NCR disappoints with full year revenue guidance; shares sell off creating opportunity.
    • A number of key acquisitions allow NCR to scale its payment platform, but creates "noise" in the operating results.
    • Increasing SaaS revenue and gross margin expansion combined with a plan to deal with legacy pension obligations should allow earnings to significantly expand.
  • Loral Loses ViaSat Patent Matter, But Could Be A Win For Shareholders
    Mon, Apr. 28 LORL 23 Comments

    Summary

    • News reports indicate Loral has identified a front-runner to acquire it -- Ontario Teachers' Pension Board.
    • Loral lost its patent litigation with ViaSat, but allows for potential sale of Loral to go forward.
    • While Loral's potential $200 million damages liability reduces potential value in a transaction, jury awards are not dispositive and damages could be lowered.
    • Investors should learn more when Telesat reports Q1 earnings results and "other matters" on May 1.
  • Dunkin' Brands: High-Quality Business, But Sells For Full Price
       • Sat, Apr. 26 DNKN 6 Comments

    Summary

    • Dunkin' Brands affected by inclement weather in Northeast where it has significant exposure.
    • The business is high-quality with a durable economic moat and high-margin franchise model.
    • While the business is high-quality, it sells for a premium price and high multiples of free cash flow.
  • Overstock.com Looks To Accelerate Growth, Shares Appear Cheap
       • Fri, Apr. 25 OSTK 9 Comments

    Summary

    • Overstock.com missed quarterly estimates, but is building infrastructure for growth.
    • Recent noise around 'philosophical' issues such as Overstock accepting Bitcoin obscure value proposition.
    • International growth and new, adjacent product offerings such as an insurance exchange provide a capital efficient way to scale the business.
  • Bidvest: A Globally Diversified South African Conglomerate
       • Fri, Apr. 25 BDVSY 2 Comments

    Summary

    • Bidvest is a globally diversified conglomerate headquartered in South Africa.
    • Recent comparable transactions shed light on certain of Bidvest's assets' value (e.g., food service).
    • Bidvest remains modestly levered (10x interest coverage), providing capacity for new, accretive acquisitions (e.g., Adcock Ingram).
  • Mr. Market Offers A 'Deal' On Travelzoo
       • Thu, Apr. 24 TZOO 2 Comments

    Summary

    • Travelzoo announces management changes in Local & Search businesses due to continued weakness.
    • Shares trade at 52-week lows, but risk remains with respect to the Local & Search business.
    • Revenue growth in Travel segment is masked by Local & Search weakness, and Travelzoo is not getting credit for investment in new, higher commission, hotel booking platform.
    • Travelzoo has solid long-term potential, but near-term risks remain salient.
  • Free Cash Flow And Deleveraging Is The Word At Realogy Holdings
       • Sat, Apr. 19 RLGY 10 Comments

    Summary

    • Realogy Holdings operates at meaningful scale in the residential brokerage business.
    • The business model includes high-margin, consistent franchise revenue streams from its agent network.
    • Free cash flow is being used to delever the balance sheet, allowing value to accrue to the equity.
  • Cincinnati Bell Turns A Corner
       • Thu, Apr. 17 CONE, VZ, CBB 6 Comments

    Summary

    • Cincinnati Bell recently agreed to sell its legacy wireless business to Verizon for $210 million.
    • The company holds a 69% interest in CyrusOne with a stated goal of liquidating the investment over the next several years.
    • Asset sales will help Cincinnati Bell delever itself, and focus on its higher growth Fioptics segment.
  • Accor Group Update: 'Asset-Right' Strategy On Track
       • Thu, Apr. 17 ACRFY Comment!

    Summary

    • Accor continues its "asset-right" strategy by defining its new operating model.
    • Most of Accor's owned/operated hotels are located in Europe, and could benefit from a continued economic recovery.
    • Accor remains attractive at current levels for long-term investors.
  • Interactive Brokers Could Benefit From Michael Lewis' Flash Boys
       • Thu, Apr. 17 IBKR 5 Comments

    Summary

    • Interactive Brokers continues to scale its electronic brokerage platform, illustrating operating leverage.
    • The market maker grows, but remains in a precarious position.
    • Industry veteran and Interactive Brokers Founder and CEO Thomas Peterffy believes "Flash Boys" and resultant scrutiny could be a "very big positive" for IBKR.
  • All America Latina Is Getting Taken-Out In A Stock-For-Stock Deal
       • Thu, Apr. 17 ALLAY 6 Comments

    Summary

    • All America Latina is a Brazilian logistics operator with exposure to the growing agriculture sector.
    • The company received a stock-for-stock merger offer from a subsidiary of Cosan with an implied 20% premium to the April 15 closing price.
    • The deal has been approved by the ALL Board of Directors, now the vote goes to shareholders within the next 30 days.
  • Another Attractive Entry Point For Vitacost Shares
       • Sat, Apr. 12 VITC 12 Comments

    Summary

    • Vitacost remains a compelling risk/reward -- and volatile -- investment opportunity.
    • Management acknowledged that it hired Jeffries LLC to evaluate strategic alternatives.
    • Vitacost recently appointed an Osmium Partners recommended board member, further indicating the potential for a value unlocking sale of the business.
  • IAC InterActive Is Unlocking Value By Potentially Breaking Up With Match Group
       • Fri, Apr. 11 LOV, IACI 5 Comments

    Summary

    • IAC InterActive provided a "tell" to investors in December 2013, portending a spin off of its online matchmaking and ancillary businesses into the Match Group.
    • Consolidated results are obfuscating the underlying value in the Match Group.
    • Management has a history of effecting spin offs, and appears poised to separate its crown jewel from the rest of its digital properties which face tougher competition.