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Tailwinds For Overstock.com
- Overstock enjoys considerable tailwinds in its core eCommerce business.
- The company trades at a discount to peers, but is outgrowing them.
- CEO Patrick Byrne recently discussed the Overstock model as an incubator. There could be considerable value in Overstock's "software option" although I can't accurately appraise it yet.
- Recent bearish column on Overstock presents flawed criticisms.
Short Sellers Misrepresenting Radcom Story
- A recent bearish series of articles on Radcom present surprisingly weak, illogical and incoherent arguments.
- Radcom's improving fundamentals [Q3 was the highest net profit margin in Radcom's history at 12.9%] and story still very much intact.
- Q4 is seasonally Radcom's strongest quarter. I'm expecting up to $7 million in sales, 65 to 70% gross margins and 15 to 20 cents in EPS.
- I participated in a live meeting with David Ripstein this week in Los Angeles. I left feeling very comfortable in my long position.
Update: Health Insurance Innovations' Growth Is Accelerating
- Health Insurance Innovations reported $23.4 million in revenue, an increase of 59.2% year-over-year and topping consensus analyst estimates.
- After backing out one-time expenses and the cash-neutral tax expense, HIIQ's core business still generated $0.08 EPS even with increased investment in the business. GAAP accounting obfuscates economic value here.
- I believe I underestimated the synergies between HIIQ's insurance brokerage platform and HealthPocket.com. Client referrals are accelerating - 135% sequentially - and over half are going to HIIQ call centers.
Scalable Growth And A Substantial Addressable Market Make Health Insurance Innovations A Compelling Buy
- Health Insurance Innovations will report Q3 earnings after the market close on Monday, November 10.
- I expect a revenue and earnings beat (excluding any one-timers), and bullish guidance from management.
- Given the tight share structure, high short interest and limited free float, a significant "beat and raise" could cause a parabolic rise in the share price.
- Limited downside risk from potential 60%+ top-line growth in Q3. Bear thesis centers around HIIQ brokering short-term medical plans not exempted from Obamacare penalties which is short-sighted.
- Recommendation: Buy. $25/share price target in 6 to 12 months as investors get excited about the sexy growth story and platform-based business model. Bear thesis underestimates ancillary revenue streams.
Radcom Reaches An Inflection Point
- Radcom reported solid Q3 results driven by continued adoption of its new NFV-ready, customer experience management software product, MaveriQ.
- Revenues up 26% and the company earned $0.10 EPS versus a $0.15 EPS loss, y/o/y. Operating margins continue to expand.
- While gross margins were lower sequentially (higher y/o/y), management has been executing on its stated margin guidance. From here, management believes the "best is yet to come for Radcom."
- Using basic modeling, management guidance and a well-defined operating model, Radcom could earn up to $0.25 EPS in Q4.
- Reiterating Buy Recommendation: $20 Price Target.
Update: Overstock.com Continues On Its Path To A Technology Company
- Overstock reported 17% revenue growth in Q3.
- Earnings remained flattish due to well-documented software development initiatives.
- Overstock continues its transformation into a technology company with low risk bets with large potential payoffs.
Zalando: Europe's Zappos.com Goes Public, But The Price Is Still Too High
- Zalando.com, an e-commerce fashion retailer, went public in October 2014.
- Shares do not appear to be offering an asymmetric risk/reward at current price on the long side.
- Zalando has a lot of room for growth, but the target operating model at scale needs to be defined.
Rosetta Stone Is Possibly The Most Misunderstood Story In The Stock Market
- Rosetta Stone is incredibly undervalued by a variety of measures.
- Using the CFO's year-end cash guidance on Q2 earnings call of $70 million (before considering buybacks, etc), Rosetta Stone trades for less than $100 million pro forma EV.
- Most investors I talk to don't understand Rosetta Stone has an Education & Enterprise business unit where most of RST's value resides.
- Management is being cooperative with two 13D filers - Nierenberg Investment Management and Osmium Partners. The company announced a new director and important E&E partnerships.
Wayfair Investors Are Paying Up For Growth, But Should They?
- Wayfair is a fast growing eCommerce business, yet unprofitable.
- At the current price, investors are paying up for growth and execution.
- The company has a dual class structure giving voting control to Wayfair's founders and PE investors.
- While the growth prospects are nice, the shares do not offer a compelling risk/reward scenario on the long side.
Travelzoo Needs Growth To Reinvigorate Shares
- Travelzoo is rolling out a new hotel booking platform that could provide much needed revenue growth.
- Ralph Bartel, Travelzoo's founder, and brother Holger Bartel are taking a more active role in the company.
- The company has its challenges, but Travelzoo has a strong balance sheet with net cash and a large and growing customer base.
- Travelzoo reports Q3 earnings on October 16, 2014.
Radcom: Q3 Earnings Could Be The Catalyst To Push Shares To Double Digits
- Radcom will report Q3 earnings on October 29, 2014.
- Due to certain revenue timing issues in Q2, I expect Q3 to look materially better from a sales growth and earnings perspective.
- Sequential and year-over-year comparables should be easy to surpass.
- I'm modeling up to $0.12 EPS for Q3 which would be a significant improvement sequentially and year-over-year.
Brocade Buys Out A Radcom NFV Service Assurance Competitor
- Brocade buys Vistapointe Networks, a start up in the customer experience and service assurance niche. Financial details were not disclosed, but the deal was all cash.
- The Brocade / Vistapointe deal provides an indication of value for Radcom's Network Functions Virtualization ("NFV") service assurance solution, MaveriQ.
- Radcom's Q3 earnings report, likely to be published in late October, could be another catalyst for shares to move appreciably higher.
- Radcom's indirect sales channel should begin to open up from its first product built via the Intel Network Builders partnership.
- Conclusion: Radcom remains a compelling buy due to its evolving software-centric operating model and earnings leverage derived therein.
E-Commerce Pure Play IPOs Will Shine Light On Overstock's Discount
- Wayfair.com, the closest comparable (yet unprofitable) for Overstock.com in terms of operating model and home goods niche, filed an S-1 and is raising ~$350 million at a $2.35 billion valuation.
- Zalando.com, a Zappos.com clone in Europe, filed registration papers to go public this year around a $7.3 billion valuation.
- Alibaba.com arrived on the Big Board last week with acute investor interest and appetite for shares.
- Rating affirmed: Overstock is a buy.
Vivendi: Flush With Cash And Focused On Media/Content
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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?
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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.