Scott Devitt: GSI Commerce Continues to Make "Appropriate" Decision to Invest in its Business (GSIC)

| About: GSI Commerce, (GSIC)
This article is now exclusive for PRO subscribers.

Stifel Nicolaus Internet analyst Scott Devitt on GSI Commerce’s (ticker: GSIC) Q4 2005 earnings:

• We maintain our Hold rating on GSI Commerce shares. The company continues to make the appropriate long-term decision to invest in the business; however, we believe the time to own the shares to be upon visibility to the returns on the investment.

• The company reported 4Q05 revenue of $172.3 million and EPS of $0.25. We were looking for revenue of $164.8 million and EPS of $0.31.For full year 2005, the company generated $432.7 million in net revenues and $0.06 in EPS.

• GSI Commerce generated $116.2 million, or 41% of its sales in the sporting goods category. Total net revenue from product sales were $135.1 million, or 78.4% of total revenue.

• Our 2006 revenue estimate is $521.1 million and cash EPS of $0.20. For 2007, we expect revenue of $607.9 million and cash EPS of $0.44

Our Thoughts

GSI Commerce reported another quarter in which revenue was above expectations and earnings were below. We expect consensus estimates to come down in 2006 toward our $0.20 estimate from the current $0.46 estimate. The company continues to invest in its business, as it should to allow for long-term profit growth. We continue to monitor the business for signs of leverage, which we do not believe become apparent until 2007. We would be buyers of the shares in the lower double digits or as the company approaches an operating leverage point in the business, all else being equal.

Estimates and Conclusion

For 1Q06, the company gave net revenue guidance between $101 million and $106 million with adjusted EBITDA in the range of $0.5 million to $1.5 million. Net loss for the first quarter is expected to be between $3.0 million and $4.0 million. For full year 2006, management expects net revenues to be between $530 million to $550 million with merchandise sales between $900 million and $950 million. Adjusted EBITDA was guided between $30 million and $35 million with net income between $5 million and $10 million.

For 1Q06, we forecast net revenues of $103.8 million and a loss per share of $0.09. For 2006, we expect net revenues of $521.1 million and EPS of $0.20. We maintain our Hold rating on GSI Commerce shares.