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Monday, December 21, 2009

Sizable Insider Selling at Blue Nile (Smart!); Bidz.com Under Pressure (Yet On Sale)

Insiders at Blue Nile (NILE, $59.57) are smartly taking advantage of the company's rich valuation (please see our October post) to unload personal holdings - from Yahoo! Finance:

Meanwhile, Bidz (BIDZ, $2.00) still garners no attention from the Market, likely because of "hair" we highlighted previously and softer-than-expected 4Q09 guidance. Recall that the "hair" includes a modest amount of insider selling -- which we don't like -- but the punting is nowhere near the levels of current Blue Nile selling. We think insider buying at Bidz would provide a positive catalyst for the stock, although we believe insiders still own more than 60% of the company and, therefore, are highly motivated to act on behalf of all shareholders.

We noted back in November that Internet traffic for Bidz.com appeared to be increasing with seasonal trends. The trend continues based on Alexa.com data:

The traffic is a good sign. Of course, tax loss selling may continue to weigh on BIDZ and weak consumer discretionary spending is a real risk. In this sense, we know some investors want nothing to do with companies in the space (possible contrarian signal). That said, shares of some consumer discretionary businesses -- including the powerful Sotheby's (BID, $23.24) franchise -- have moved significantly higher in recent months, presumably on normalized earnings power (we discussed Sotheby's here). Investors seem to have confidence in normalized earnings now that the sky isn't falling and businesses are seeing stabilized results.

We continue to believe Bidz.com's current valuation (9-10x depressed earnings) does not reflect the company's long-term earnings power. Moreover, we feel comfortable that Bidz.com can capture at least its fair share of the growing global E-Commerce pie in coming years. We think the company's Middle Eastern presence is a major positive and should drive international growth even if U.S. sales remain lackluster because of a strapped consumer.

Happy investing,

Jeffrey Walkenhorst

Disclosure: Long BIDZ.

© 2009 Jeffrey Walkenhorst
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  1. I have been following BIDZ for a while and I think it is undervalued...but there could be a ways to go down, yet. I am troubled a bit by the insider selling at BIDZ -- I realize they are on selling plans, but you'd think with their stock this maligned and with such a low daily volume Marina and David Zinberg would stop selling their shares, at least to give a vote of confidence in the stock. What do you think of the insider selling in BIDZ?

    This article troubled me:
    (google "bidz.com insider selling david zinberg" and read the SeekingAlpha article...can't copy and paste into here)


  2. Hello Anonymous,
    Thank you for the comments and for sharing the article (I read last summer). As noted in my post above, I don't like the insider selling at Bidz.com. I never like to see any selling at any of my companies, especially when the company is repurchasing shares and the stock appears undervalued on all reasonable metrics. That said, you never know why someone might be selling shares. The fact that the Zinbergs still own so many shares provides some comfort in the face of modest sales, although like you, I would prefer to see selling stop.... In hindsight, it's too bad Bidz repurchased so many shares at much higher prices (many companies made same error in recent years) -- it would be nice to have excess cash piling up on the balance sheet to provide additional dry powder to purchase distressed jewelry inventory. With the share price at current levels, the Market seems to implying that Bidz.com is going to go away -- a question of survival. My research suggests otherwise. What is your basis for suggesting shares might have "a ways down"?


  3. My basis is simply the trends I saw in the day to day trading -- very little support and a very low volume. When only 30,000 shares are being traded every day, the Zinberg sales actually have a large effect on the stock price. Every once in a while I see a large purchase (~10,000-15,000 shares) which buoys the price by a quick 5-10%, but the sellers quickly erase that gain.

    The price has dropped sub 2.00 since I posted and I really have no idea how far it will go. I would like to purchase a few shares but I will wait until I see any sort of suppport for the stock before I dip my toe in.

    Thanks again for the analysis, and Happy New Year! I've enjoyed reading your blog.


  4. Thanks Dan, Happy New Year! I hear you on insider selling, especially with an illiquid stock.... BIDZ volume picked up in last half of DEC as buyers appeared to absorb some tax loss selling - from Yahoo! Finance:
    Date Open High Low Close Volume Adj Close*
    4-Jan-10 2.00 2.23 2.00 2.21 49,800 2.21
    31-Dec-09 2.00 2.03 1.96 2.00 21,300 2.00
    30-Dec-09 1.96 2.08 1.90 1.97 118,300 1.97
    29-Dec-09 1.97 2.00 1.93 1.97 71,900 1.97
    28-Dec-09 1.99 2.00 1.95 1.99 76,100 1.99
    24-Dec-09 1.99 2.00 1.98 1.99 24,600 1.99
    23-Dec-09 2.08 2.13 1.97 2.00 47,200 2.00
    22-Dec-09 2.12 2.15 2.07 2.07 16,300 2.07
    21-Dec-09 2.00 2.20 1.97 2.15 83,200 2.15
    18-Dec-09 2.12 2.15 1.88 2.00 147,800 2.00

    My view remains the same: E-commerce is here to stay and I expect humans around the globe to still "consume" jewelry. The established Bidz.com franchise (brand, platform, know-how, etc.) should enable meaningful earnings power under "normalized" conditions and also provides valuation support for long-term investors. If/when key overhangs are removed, the Market may again take notice.


  5. I am surprised they haven't released any recent developments in a press release...bidz layaway plan, bidz Refer a Friend, Dialy deals, bill me later-5 easy payments, etc. Not that it is huge news but still! Looking for some decent news when earnings come out next month.


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