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Saturday, March 12, 2011

Bidz.com (BIDZ): At Last, Y/Y Growth Returns to Business in 4Q; Still Offered By Market "For Free," Mitigating Key Risks

Last month, we noted that Bidz.com (BIDZ) was "Finally Catching a Bid as Shares Go Boom Boom Pow!" In that post, we concluded:
  • Even with the recent uptick, we believe fair value remains meaningfully higher since the business is now only trading equal to net tangible book value. Reproduction cost is certainly not zero, nor is the value that would be assigned by an informed private market buyer. Further, if management can deliver renewed revenue growth with margin expansion, we could again consider EV/EBIT and P/E valuation metrics that might bring us back to our original mid- to high-single digit fair value estimates.
The company released year-end 2010 results Friday afternoon and we were very pleased to see Bidz deliver on prior guidance (link to 3Q results with outlook) calling for renewed growth -- from Bidz.com's 4Q10 release:
  • Net revenues for the fourth quarter of 2010 were $29.0 million, an increase of 5.7%, compared with $27.5 million reported in the fourth quarter of 2009. The percentages of the Company's domestic and international sales for the fourth quarter 2010 were 59.5% and 40.5%, respectively.
Management noted that this was the first Y/Y growth in two years and, in a frank fashion, explained that discretionary conditions remain difficult:
  • "In what continues to be a difficult economic climate, we delivered year-over-year top-line growth for the first time in approximately two years during the fourth quarter," stated, Leon Kuperman, President & Chief Technology Officer. "Since quarter end, we have begun to see a slight slowdown in consumer spending nevertheless, we are continuing to strengthen the scope of our product offering with an increased assortment of both low and high-end brand name items to fulfill our customer's needs."
Management also commented on the company's new Web site:
  • Leon Kuperman, continued, "Over the past several months we have been intensely focused on an overhaul to our Bidz.com website and believe the new site features will deliver an even stronger customer value proposition. The new layout offers comprehensive, easy-to-use tools including larger thumbnail images, navigation tools with 'Fly-Out' categories, faceted search as well an improved checkout processes. We believe over time the new site will help to increase conversion rates, improve overall customer satisfaction, increase average order value and result in decrease shopping cart abandonment, and lower customer acquisition costs. We are pleased with the overall progress of the new site and expect to launch later in March 2011."
Following the results, one headline noted 1Q11 guidance "Below the Street" -
Yet, according to Yahoo Finance, only one analyst currently covers the company:

Thus, in this case, comparing guidance for revenue of $23-25 million to "the Street" of $28.4 million means very little.... However, as a point of reference, Bidz generated sales of $28.2 million in the March quarter of 2010, implying that the return to Y/Y growth in 4Q is ephemeral. We would prefer to see the Y/Y growth trend continue in each quarter of 2011, especially with the smaller Modnique.com business becoming a larger portion of the overall business.

Nonetheless, the company's demonstrated progress during 4Q10, coupled with multiple business development initiatives (e.g. new Web site) and a healthy balance sheet, are more than sufficient to support our view that the Bidz.com's private market value remains materially above current trading levels.

The modest 4Q progress may be just enough to bring incremental Market attention to the company. We'll see.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long BIDZ.
© 2011 Jeffrey Walkenhorst
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