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Focus Media / Sina Transaction: Think Outside the Box to Make Profits

Focus has had very little growth in cash inflow...nothing like the growth in reported revenue. Accounts receivable days has gone from like 65 to 130 days. Cash coming in the door actually declined last quarter (from memory), even though (again from memory) there was something like 75% revenue growth.

So one has to wonder, are the revenues real? Is the bottom line earnings real? (Sina management, for what it claims, says that receivables are lower on the screens business).

Why is it that LCD's are such a successful business in China, but yet this advertising medium doesn't exist outside of China (to my knowledge). Is it a real business, or is the supposed success of Focus derived from some highly questionable accounting and business practices?

If you make sufficient provisions to bring Focus' accounts receivable days back into line with China media industry norms of 60 days, and if one strips out the offending revenues from the P&L, then the 20% odd margin quickly becomes zero profits. This inconvenient truth just so happens to triangulate with the reality that there are no other LCD media companies thriving in the world today.

Lets think about VISN. Their cash inflow (revenues plus beg of period A/R less ending A/R) showed a decline in Q3, at the same time that the reported P&L showed huge growth (I can't remember whether 100% or 300% but it was huge). Where in the world are there material companies providing advertising on buses and trains?

Talk about Air Media. Where in the world are there material companies/businesses focusing exclusively on purchasing space from a couple of airports. I would like to see the one sell side report that looks for global comparisons in this business nice. Rather it seems like every research report accepts the business viability and accounts at face value and obsesses over the next quarterly earnings number.

Bottom line, in China, what you see isn't always what one gets. I have been amazed reading and communicating with the leading sell side analysts covering Focus, how the A/R problem has been overlooked. In my opinion, this isn't some obscure metric or KPI measuring management performance. This is the canary in the coal mine, that lets you know whether you are being taken to the cleaners.

The sad part is that sometimes watching A/R isn't even enough. If one thinks that channel stuffing to inflate revenues at listing doesn't happen, then think again.

The bull market created so many stories where investors and bankers conveniently overlooked proper due diligence and dropped standards, and bought into all sorts of stories. Focus falls into this category.

So as to the theory that the rump of Focus is worth something? If Sina's guidance on A/R is correct, then A/R for the Focus rump is off the map, and therefore, the rump's revenues and profits, are likely to be not real. Hold a gun to my head, and I would guess that the rump will go to zero long term, or have residual value only as a shell.

Disclosure - have made money as a Focus short previously. Currently no position.

Optimism in China's Oil Demand Growth

This emerging market/China oil story is looking very tired. How much oil demand was driven by domestic demand, and therefore presumed by most to be sustainable. Alternatively, how much of China's economic growth, and therefore overall economic demand growth and oil demand growth, was merely the re-branding of European/US demand growth as a result of relocation of the manufacturing base. Has global growth actually increased in past years as a result of China or has there been merely a re-allocation of sources of growth, and therefore with China having a more neutral impact on overall global demand growth for oil.

Apologies for posing more questions than hard quantified answers, but somebody has got to call these desperate calls for help from the commodity bulls.....

LDK Solar: A New Business Model

Looking forward to reading this, though I have to admit that any dicussion of a "new business model" has me naturally thinking short, particularly when the stock has outpeformed by so much!

Focus Media: Short Squeeze Developing?

It is fascinating that the short interest is so big. The analysts have been bullish all the way down from the peak. This is a huge short interest, and somebody clearly thinks they know something that the street doesn't know. If there is a time bomb ticking here, it is the Dec 2007 under the radar screen announcement that China would require licenses to operate these outdoor media networks. At the same time, nobody knows how to apply for these licenses. I am not aware, though honestly I havent checked, whether Focus has the onshore/offshore holding structure that can at least accomdodate issuance of a license to a PRC entity.

I would guess that well informed parties lie behind such a huge short interest, because the street clearly isn't looking at the headline numbers on this stock. Somebody is clearly betting big that this time bomb is indeed going to explode.

Focus Media: May Be Growing Fast But What About The Cash?

Word on the street is that the real reason is regulatory problems. I sat in a meeting where the CFO noted that "Focus didnt' have the economies of scale to install an automated screen updating system. But, other industry partcipants I speak to say that apparently they do have the scale, and they do have such a system installed, and this requires a broadcasting license that they don't have. The hearsay/theory goes that they are being forced to turn off screens as a result of this, and talk of snowstorms/earthquakes... etc, is smoke and mirrors. Against this backdrop, George's comments resonate.....if they are having real problems on the revenue front, then the temptation of managers will be to fake revenues and worry about the bad debt provisions later. Although I haven't studied the A/R patterns of FOCUS, I take heed of Georges comments in that we shouldn't always be fooled into believing in "cheap PE's" etc when the E on which the PE is built isnt robust. Short positions in these situations, lookin beneath the surface and questioning the consensus, is where real fortunes are built.