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Monday, March 8, 2010

Key Questions Re: BIDZ - Price, Catalysts, Time Horizon?

The other week, we fielded questions on Bidz.com (BIDZ) regarding current valuation/downside, potential catalysts, and time horizon. Our now slightly updated responses are below:
  • Price - hard to say what could happen and we're not expecting much for 4Q results given weak consumer discretionary spending trends, yet low current multiples on virtually all metrics (P/E, P/CF, P/S, P/B) suggest shares should have downside support. Of course, we thought this when the stock was at $3. Micro-caps often swing widely without much logic, up or down.
  • Catalysts - yes, the economy is still weak with strapped consumers (and federal/state governments) everywhere, yet Bidz should now be up against easier Y/Y comps in 2010. Plus, the company is introducing new features (Bidz Bucks) and offerings (Modnique) enabled by the new ERP/inventory system that may spur growth. Also, Bidz has decent international exposure, particularly in the Middle East, that may offset slower U.S. sales. Finally, Bidz filed a motion to dismiss class action lawsuits on 12/4/09. So, we see potential catalysts on the horizon. [subsequent note: Bidz.com announced on 3/1/10 the dismissal of the case with the payment of a small $20,000 settlement -- this was one of the positive catalysts we highlighted in our initial post last August; market reaction last week: yawn].
  • Time horizon - as we've detailed previously, we take a long-term view as it's impossible to know what might happen near-term. Who knew banks and REITs would go crazy to the upside last year (although they seemingly couldn't go much lower)? We suspect potential positive catalysts noted above may push BIDZ higher, yet timing is uncertain. However, what we do know is that no one wants BIDZ at present and big money can be made by establishing positions in out-of-favor companies that later become bigger, better, and stronger (and then garner significant Market attention). The key question is this: is Bidz.com a truly durable franchise with real earnings power? If the answer is yes, then now is probably a good time to average down. Our bet is that Bidz will be around as we believe established Internet franchises are more difficult to replicate than some realize -- not to mention the appeal of QVC/HSN-like online business models -- but the Market apparently doesn't think so. Tough economic conditions may continue to weigh on results and, therefore, the company near-term.
Please note that Bidz.com is scheduled to report 4Q09 results tomorrow afternoon. We look forward to a business update.

Separately, for those who are interested in hearing/seeing management discuss the Bidz.com business model, please see this video from August 2007 (dated but still relevant). PetMed Express (PETS) has an informational video on its Web site and we suggested Bidz.com do the same -- management relayed that they also had a video and subsequently placed a link in the IR section of its Web site. We were pleased to see the action.

Happy investing,

Jeffrey Walkenhorst

Disclosure: Long BIDZ, PETS.

© 2010 Jeffrey Walkenhorst
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