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Stephen Frankola
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Stephen Frankola contributed to Seeking Alpha while attending the Pennsylvania State University, graduating in 2011 with a Bachelor of Science degree in Accounting.
My company:
Whacks Wax
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  • Who is Buying Sport Chalet Shares?
    I began tracking Sport Chalet, a regional sporting goods retailer, this summer and bought a bit of class A shares on November 5th. The share price declined after my purchase but has been appreciating in price on highly abnormal volume over the past few weeks. However, the reason behind this buying isn't clear - the tiny company has produced no news during this time period, yet someone is purchasing lots of stock, focusing efforts on the Class B shares.
     
    First, a bit of background:
     
    The company has two classes of shares (symbols SPCHA and SPCHB). As of this June 17, 2010, there were 17.4 million class A shares outstanding and 1.7 million class B shares outstanding. However, each B share has 20x the voting power of an A share. Additionally, three key insiders - the founder, the CEO and the CFO - collectively own shares that comprise 65% of all voting power, effectively being able to make any company decision as long as they vote together.
     
    There are also unusual provisions that further protect the ownership stake and decision-making power of these people. There a provision that allows the above owners to sell class A shares to buy more class B shares to increase voting power; another provision allows the Board of Directors to issue more class B shares directly to "persons deemed... to be preferable to a potential acquirer" which likely translates to "giving more shares to the founder and management." Also, an acquirer of more than 10% of the class B shares may be required to buy a matching amount of class A shares, with the goal of making the accumulation of a large voting stake more expensive. (All of this information was found in the most recent annual report.)
     
    What's happening now:
     
    The recent action in the stock has been most notable in the class B shares. Since December 17th, over 150,000 shares have traded, including 98,000 on December 17th. Though a single buyer certainly hasn't purchased every share traded, it is still notable that almost 10% of the class B shares have changed hands in the past two weeks, especially considering that average daily volume is just 1,400 shares. During this time period, shares increased from $2.70 on December 15th to roughly $4 today.
     
    Class A shares have acted similarly over the past few weeks. Share price increased from $1.91 on December 15th to $2.80 today, and volume has been about 2-4x above average during the past two weeks. However, this only represents about 1% of the outstanding A shares.
     
    Who dun it?
     
    Despite the accelerated purchasing of B shares, it seems unlikely that a potential acquirer is behind this action because it any efforts towards acquisition can be easily negated by the Board of Directors. Therefore, it seems likelier that current management/insiders, a large retail investor or small institutional investor may be responsible for recent purchases. However, until some sort of disclosure statement or press release clarifies what is behind the recent action, owners of A and B shares can only speculate on the cause while shares may continue to act abnormally.


    Disclosure: I am long SPCHA.
    Jan 03 1:39 PM | Link | Comment!
  • The Future of Digital Media: 4 Tiers, Consumers Lose?

    Much has been written recently about the future of digital content delivery, primarily via opposing camps discussing the unquestionable strength or impending crash of Netflix’s shares; both longs and shorts point to digital delivery of content as the catalyst behind future performance.  A tipping point in content delivery is occurring, and the development of the next few years will impact the market as significantly as Netflix’s delivery model did over the past decade.

    It will soon become easier for content creators to reach large pools of customers without going through separate distributors.  In the past, middlemen such as Blockbuster or retailers were essential in bringing customers together, and Netflix’s success in becoming the major (and basically the only) player in this market over the past decade shows that, as of this moment, it is still very important.  However, content creators should soon be able to bypass entities like Netflix if they choose to do so.

    If future consumers want to watch media on mobile devices, a content creator needs only to write applications for iOS and Android (and maybe a few others) in order to be able to reach the majority of the market.  If customers prefer watching on a computer, making content available through individual websites or aggregation hubs (like Hulu) is even easier.  Delivering content for viewing on an actual television is where distributors (cable companies and Netflix) are currently most needed, but internet-enabled TVs are hitting the market and seem likely to become the industry standard in the near future.  Then, content providers can reach a customer through a website or application.

    Because of the ease of delivery, I see content providers working to gain greater control of content to increase revenue and deliver their best properties straight to consumers.   I can see a scenario where four tiers of differing content, availability, pricing and legality exist.

    Tier 1: Latest & Best Content, Owners as Distributors, Highest Prices

    The Tier 1 offerings will be the studios’ best content delivered to consumers as directly as possible.  (For example, a consumer uses an NBC-for-Andriod application to gain access to every episode of The Office).   Consumers will have to go straight to the owners (via a website, mobile-device application, etc.) to get the latest films, TV episodes, or classics of either medium.  They’ll also likely pay relatively high prices, as the studios have no reason to give away their best content, whether directly to consumers or to other distributors.

    Tier 2: Limited but Broadly-Appealing Content, Distribution Partnerships, Medium Prices

    Future Tier 2 distribution may look a lot like Hulu or Hulu Plus does today.  Content owners may partner together to create some entities that aggregate content to allow less-discerning customers to easily access their content.   These portals may simply tease customers with a few available episodes for free or allow a greater library for some cost, but ultimately, the purpose would likely be to point customers to the owner’s own purchasing/viewing platform.

    Tier 3: Lots of Acceptable Content, Mass Distribution, Pricing Consumers Love

    Tier 3 content providers will attempt to bridge the gap between their customers’ desires for cheap content and the content owners’ resistance to providing attractive properties.  Netflix will likely own this sandbox for the foreseeable future, and their main battle may be negotiating with content owners to obtain enough content to keep subscribers from cancelling without having to pay an amount that will decrease margins.  Netflix does seem to be comfortable in serving this niche, as Netflix’s own CEO, in open letter published on Seeking Alpha, wrote “…that at $7.99 per month, [Netflix] consumers don’t expect to have everything under the sun.”  While a subscriber’s $8 will probably not buy much content from Tier 1 or Tier 2 distributors, subscribing will only remain attractive if content owners are charitable in providing some watchable content to the Tier 3 distributors. 

    Tier 4: Illegal, but Everything You Could Ever Want and More

    While older people may not even be aware of it, almost any digital media ever created is easily available online.  Consumers who are willing to ignore the law can easily stream or download pretty much anything. The availability beats anything that any company provides: movies are available while still in theatres, and episodes are uploaded the night they air.  While this dark corner of the market may be relatively unimportant now, expensive prices from Tier 1 and Tier 2 providers and lackluster availability from Tier 3 may push more consumers, especially young ones, towards obtaining media through this medium.

    Win, Lose, Unknown

    Content owners seem likely to win, as they will have the power to charge what they choose, whether selling directly to consumers or to third-party distributors.

    Consumers seem likely to lose.  Prices for media fell as Blockbuster put mom-and-pop rental stores out of business, and Netflix trumped Blockbuster by providing more content in a more efficient way for cheaper prices.  Now, all-you-can-watch content seems likely to decline in quality and prices will increase for the most in-demand media.

    The future for Netflix and other third-party distributors is less certain.  If the best content is too expensive to be attractive, consumers will flock to cheaper content at Netflix.  But Netflix will be at the mercy of content owners when negotiating the price and quality of content that they can redistribute.  I personally think that the risk of owning shares at this point is not worth the potential reward, though as a consumer, I am rooting for their continued success.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 28 3:14 AM | Link | Comment!
  • Why is Vonage up 500% in 5 days?
    Read all about it at my blog here:

    Why are VG shares soaring?

    Tags: VG, telecom, vonage, VoIP
    Aug 25 11:35 PM | Link | 1 Comment
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