Three Months EndedThe 37% decline in new buyers matched a 37.4% Y/Y decline in net revenue excluding B2B sales and is a modest improvement from declines of ~40% in recent quarters. Still, fewer buyers are leading to higher acqusitions costs per new buyer (e.g. costs spread across fewer new purchasers).
Auction Metrics 2009 2008 % Change
--------------- ---- ---- --------
Number of new buyers 34,252 54,072 -36.7%
Average selling price per order (gross) $187 $175 6.9%
Average orders per day 1,465 2,453 -40.3%
Average items sold per day 6,899 8,431 -18.2%
Average items sold per transaction 4.7 3.4 37.0%
Acquisition cost per new buyer $65 $43 51.2%
Gross Margin $ per average order $54 $42 28.7%
Unfortunately, forecasting remains a challenge in a tough consumer environment where discretionary items are increasingly secondary. In addition, Bidz cited recent challenges related to the company's new enterprise resource planning (ERP) software deployment. As a result, 4Q09 guidance came up light relative to both consensus estimates ($34.5 million) and prior management commentary (from 2Q09 report) calling for a return to Y/Y growth in 4Q (i.e. greater than $35.1 million):
- Guidance for the fourth quarter of 2009 of $28-$32 million, gross profit margin of approximately 28-30%, pre-tax income of approximately $0.4-$1.5 million and expects fully taxed GAAP EPS of $0.01-$0.04.
- The Company's results will be affected by its ERP conversion in the fourth quarter of 2009, but the Company expects to resume normalized operations in the first quarter of 2010.
Further, we are disappointed by weaker than expected bottom-line figures/guidance. The results provide more evidence that Blue Nile's (NILE, $61.24) business model is less sensitive to discretionary spending (see 3Q09 results here - revenue actually increased 2% Y/Y and operating margin increased 80 bps Y/Y to 5.8%). As with any retailer, we need to watch competition, including established, usual suspects and upstarts such as Gilt.com and Net-A-Porter.com.
Still, as noted in our post earlier today -- we believe Bidz remains attractive for a number of reasons, which includes making the necessary investments to achieve a stronger, larger e-commerce business into the future. We're focused on a business model that we believe has enduring franchise value with a margin of safety relative to near- and long-term earnings power. In this case, "near" is pushed into 2010.
The good news is that we continue to believe that risk factors are more than discounted in the current valuation and expect the extreme valuation gap between BIDZ and NILE to narrow over time.
Disclosure: Long BIDZ.
© 2009 Jeffrey Walkenhorst
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