Global Sources' (GSOL) story misunderstood?

| About: Global Sources (GSOL)
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Pacific Growth Equities analyst Jason Brueschke initiated coverage of Global Sources (ticker: GSOL) on June 16th with an overweight rating. Global Sources is a B2B media and trade show company that facilitates trade between buyers in Western markets and manufacturers / suppliers in Asia, Japan and China. It competes with Alibaba in China. Here are the key points of the report:


  • Overweight rating.   


  • New agreement with eBay (ticker: EBAY) holds promise of accelerating growth.

The company is one of Asia’s leading providers of trade information in:

  • Print - specialized trade magazines.
  • Online - via nine vertical marketplaces.
  • Face-to-face - via trade shows.
  • Through direct selling - via eBay.
  • This comprehensive approach is designed to meet the marketing and sourcing needs of supplier and buyer communities in the format  that best suits each individual customer’s requirements and preferences.

Expect GSOL’s business-to-business (B2B) growth to be driven by a combination of:

  • Overall growth of the Chinese economy.
  • Expanding its vertical market focus.
  • New strategic alliances such as eBay.
  • Global Sources Direct, its new sales channel with eBay, which allows Chinese companies to do business in China via eBayEachNet, and worldwide through eBay’s PowerSellers.

Trade shows hold promise of significant long-term growth: 

  • GSOL currently conducts 5 trade shows per year and is planning on expanding that number and the size of venues of some of its more popular shows. 
  • This should accelerate revenue and profit growth over the next two years. 
  • Nearer term - the economics of the trade show business are such that Global Sources must invest ahead of revenues, which negatively impacts 2005 EPS.   

Recent guidance disappointed investors -- but few understood economics of trade show business:

....On the  Q1:05 call, Management conservatively guided 2005 revs of $109m to $111m and EPS of $0.20 to $0.25, a forecast that, in our view, disappointed many investors. In our estimation, despite repeated comments on conference calls that GSOL is in the “launch and  development phase