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  • Should You

    Highlights from's recent earnings:

    Payments customers grew by 10% sequentially

    Core US matching revenues declined sequentially, from $22.7M to $22.6M

    Mobile enrollment is a catalyst

    It costs too much to acquire customers

    The key factor in the success of is lowering the customer acquistion cost. It takes roughly nine months to breakeven on a new customer, so new customer acquisition cost is in the vicinity of $350. will need to cut the cost in half in order to generate a cash return on new customers, a critical milestone for the company.

    Why is customer acqusition so costly?

    Punching into Google trends shows some interesting results. The service is most popular in "college" towns like the Washington DC area, Boston, Charlotte, and Boulder. The service plays well with transplants who hire college students or recent graduates, such as in my hometown, Washington, DC. The challenge for is expanding outside of that narrow sweet spot.

    Once on, users like the service. Reuse is high and users come back multiple times. The challenge is overcoming that high initial ick factor (not to mention racism).

    Mobile is a potential catalyst does not currently have a mobile enrollment process. According to the CEO, that feature is to be rolled out ahead of the peak season in the summer. Mobile holds the promise of dramatically reducing the high customer acquisition cost. Mobile advertizing is cheaper and eliminating leakage (from the mobile site to the desktop) should substantially improve enrollment figures. Once the entire enrollment, hiring, and payment process is on mobile, there is a chance the service could see a marked increase in stickiness and revenues.

    Marketing is increasingly effective

    In Q1 2014, generated roughly $1.50 in revenue per $1 of marketing. In 2015, that ratio improved by more than 50%, to $2.26 per $1.

    The numbers are moving in the right direction and demonstrate that the core business is fundamentally healthy, if growing more slowly than expected. In fact, it's likely that the company is sandbagging recent results in order to invest in the site. significantly underspent the guidance for marketing as a percentage of revenues (64% vs. 81% in 2014), choosing to pour more money into R&D. is a widely unloved stock

    New 13Fs show that is widely unowned among large mutual and hedge funds. It is also among the most heavily shorted stocks. With a fast growing payments business providing a margin of safety and expectations so low, is a good bet for investors looking for a low-risk opportunity to own a potentially explosive growth company.

    Tags: CRCM
    May 16 4:32 PM | Link | 1 Comment
  • Radiant Heats Up

    Radiant Logistics (NYSEMKT:RLGT) looks to be in a very good position at this point, for a number of reasons:

    a) cheap financing via preferred offering

    b) reduced transportation expense due to OTE acquisition

    c) more agent station conversions in the hopper

    Here is Crain's plan, as it's taking shape:

    1. acquire networks (done)

    2. acquire company owned gateway locations, especially at cross border locations (NY, LA, Laredo, now DFW, ATL, PHX)

    3. develop density in trade lanes to improve transportation margin (OTE acquisition)

    4. funnel volume through company owned gateways, capture more of the margin

    5. internalize truck brokerage, customs brokerage, etc. to capture more margin. Crain mentioned that if Radiant acquired a $100M truck broker, "most" (51%?) of the $10M of gross margin would be captured as ebitda. Going by recent acquisitions of truck brokers, it looks like Radiant could do a deal at 2.5 - 3x post-synergy multiple

    6. do more agent conversions, esp at gateway locations. Crain listed some of the targets in the most recent presentation (Miami, Detroit, Houston were mentioned)

    7. set up company station overseas (already setting up HK location)

    So Crain is essentially developing a feeder and toll booth structure - generate the volume at the agent stations and then feed it through the company owned linehaul network and company owned gateway stations. It's very clever way to leverage the agent volume. And OTE is a good fit because the network serves all of the same airports. Essentially it runs a taxi service between the airports, as its largest customer is probably an airline.

    Disclosure: I am long RLGT.

    Tags: RLGT
    Nov 25 8:20 AM | Link | Comment!
  • Trio-Tech Again

    Trio-Tech is profiled below. However, the below article does not tell the whole story. Trio-tech is a company in transition. The company is shifting into real estate and, to a lesser extent, oil and gas fabrication. Currently, the company is undercapitalized for the opportunities it is trying to pursue. Working capital is funded by $2mm in bank funding, and another $3mm of borrowing supports a real estate development in Malaysia.

    The company's manufacturing operations are a drain on cash and do not produce a profit. It is likely that the manufacturing operations will be sold or shut down, freeing up to $5mm.

    Real estate

    The company has recently pursued a policy of developing real estate. There is approximately $4mm currently invested in China real estate. That real estate does not generate a significant return (what is the cap rate on Chinese real estate? It must be extremely low), but is carried on the books at book value minus depreciation. Adding back depreciation, it is worth roughly $2 per share. The real estate division also participated in a deal that netted the firm $1.7mm in fees for undetermined services, perhaps connecting a real estate partner with government officials. In reality, the fee was a return of capital, and the real compensation was 10% ownership of a joint venture. As you can see, the transactions are complex and hard to understand.

    In addition, real estate is also at work in the testing operations. A $5mm facility in Malaysia, for instance, hosts a testing and manufacturing joint venture with Freescale (Trio-Tech owns 55% of the joint venture). In addition, a property bought in 1994 in Thailand for roughly $400,000 is likely worth $1mm or more. A property recently for sale in Malaysia, listed on the books at $135,000, was recently under contract for $1.1mm. The company pulled the purchase due to increasing real estate values, or so it says. All in all, those real estate values (outside of the RE division) add up to roughly $2 per share.

    Adding together the China and operations real estate sums up to $4 per share.


    The testing division is a high-fixed cost business, which means that incremental revenues provide fat margins. Currently, the company operates a large facility in Malaysia, and it recently opened a facility in Tianjian, China. The Tianjian location is ramping up production and the company has stated, in the most recent earnings report, that it is optimistic about that business. A ramp in revenues could show significant benefits on the bottom line.


    Currently, the value of the real estate exceeds (in fact doubles) the current value of the stock. However, a small cap (indeed micro cap) such as Trio-Tech is unlikely to get full-credit for any asset that does not produce income, and the China real estate is at astronomical cap rates. In addition, the real estate in the testing business will not be credited until those assets are monetized (and counting them as assets is in fact a form of double counting, seeing as the sites are currently in use).

    The main catalysts are two fold, or actually three. One is a sale or shutdown of manufacturing, generating a source of funds. Two is an improvement in the testing business, and improved margins (which is in fact already underway). Three is a sale of any of the current real estate assets, or significant rental income. Unfortunately, I don't see the real estate ever generating much interest among investors until the assets are sold.

    Corporate governance

    Interestingly, as a US company, Trio-Tech has excellent corporate governance, up to a point. Directors fees are low and share count is stable. Unfortunately, the chairman, CEO and CFO form a kind of iron triangle preventing outsiders from effecting change. The two employees and the chairman will block any attempt to reduce their salaries or effect other changes that would indispose the current management. That means management is very unlikely to do anything to benefit shareholders that would also put management out of a job.

    Disclosure: I am long TRT.

    Tags: TRT
    Feb 19 1:40 PM | Link | Comment!
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