Saturday, July 30, 2005

a new long position! Aptimus (APTM)

I picked up some shares of Aptimus (APTM) last week in the $17's. The co. reported on Thursday and took down 2005 guidance pretty significantly and finished the week at $15.99. Note that APTM is a microcap stock (market cap ~ $100 million) and avg. daily volume is around 30,000 shares. This isn't SONT type speculation but it is speculation nontheless.

I would describe APTM as an online direct marketing lead generation company. I'll try to illustrate what this means. Suppose you were to visit Zeb's Cooking Supply website and decided to purchase some pots and pans. After you complete the online transaction, an ad for the Culinary Arts Institute appears on your screen. It might ask you for your name and address so that the Institute could send you a DVD that covers their chef program. In this situation, the Institute (advertiser) would pay APTM for generating a lead. And APTM would share a portion of that revenue with Zeb (publisher). APTM has a process called Dynamic Revenue Optimiztion to figure out the best place to place advertisers ads in it's network. This model seems pretty simple and scalable. The trick is for APTM to attract high powered advertisers and publishers into their network. To that end, APTM has made some key personnel moves recently. They hired the founding CEO of Ask Jeeves (Wrubel) as an EVP, a former VC guy into Business Development (Benz) and added another Business Development guy (Mayor) that used to work with email marketing networks. If you look at the pr (link above), the taking down of EPS guidance might be due in large part to bringing these big hitters on board.

I've spent the past 3 years in the direct marketing industry and can tell you that advertising dollars are making their way online. My company mails an unbelievable amount of catalogs to our housefile and also utilize prospect mailings quite heavily. I know that as we continue to grow, new customer acquisition efforts will make their way online. The stated ROI's are just too compelling not to test into this area (APTM type networks).

Jeffries on the IGT quarter

  • EPS for the quarter came in 2 pennies better than consensus but management maintains $0.30/quarter EPS guidance for next 6 quarters.
  • Co. guides to $100 million per quarter in buybacks
  • Jeffries still likes the story into 2007 (some 2006 events pushed out)
  • Slot opportunities in FY06
    • at Mandalay and Ceasar's properties with new management teams in place (acq's)
    • Boyd's South Coast - 2700 slots
    • River Rock Station - 2700 slots
    • Borgota expansion - 700 slots
    • 2 racetracks in NY - 2500 each
    • Macau Stanley Ho's - 2000 slots
  • Opportunities beyond FY06
    • PA - 14000 slots
    • Venetian Macau - 5000 slots
    • MGM Macau - 1000 slots
    • Racetracks in FL - 3 @ 2000 each
    • CA taken out of Jeffrie's model
    • UK - 6000 slots
    • Big Vegas expansion in 2006-08
  • Intelligent Table System (partnership with Progressive and Shuffle) could be ready for a demo at G2E show in Sept. 2005, rollout in 2006
  • Server based gaming schedule - "living labs" in 2005, tests throughout 2006, regulatory approval in 2007, material sales impact in 2008.
  • Also, Bear Stearn's mentioned strong outlook for IGT's Japan sales (partnership with Sammy). BS expects huge 4Q sales into Japan. BS also mentioned enormous market in Russia, IGT just getting to work there.

For me, guidance was a bit disappointing and Jeffries mention of CA a bit surprising, but I remain a committed long. IGT is financially very strong and should benefit from gaming expansion and server based transition in 2006-10.

Friday's Roach post

EGOV reports solid #'s

I'm particularly impressed with the non-DMV application progress. I also feel good about the hunting and fishing terminals expanding into other WMT's and KMRT's. Stifel gives their take on the quarter.

WFMI vs. OATS

One of the key reasons why I'm short OATS is the idea that competition within the natural food retailing sector is fierce now and will only intensify in the future, especially from WFMI. I think even ardent OATS bulls would agree that in terms of execution, WFMI is clearly the superior operator. If you look at things like sales growth, SSS growth, gross margins, operating margins, ROE, cash flow generation and balance sheet health, the results aren't even close. I think OATS bulls bank on the rising tide of "natural food popularity" will lift all boats. I find this thesis questionable and also am perplexed at the turnaround opportunity thesis with shares near $14.

To get a better guage of WFMI's expansion into OATS territories, I visited the stores in development web page at WFMI's website and tried to match up any of these new WFMI stores to any existing or planned OATS/HM stores. I recognize that in many of these markets, OATS already faces competition from WFMI, Trader Joe's and others. The point here is to look at incremental competition from the industry leader over the next few years. If any reader feels that one of these new WFMI stores will not go head to head with an OATS/HM store, let me know at steibt@yahoo.com.

WFMI Store in Development Current/Planned OATS Store
Scottsdale, AZ WFMI / Oracle Wild Oats, Speedway Blvd. Wild Oats
Vancouver-Cambie, BC WFMI / Vancouver-Cambie, BC Wild Oats
Long Beach, CA WFMI / Long Beach WO
Pasadena, CA WFMI / Pasadena WO
Roseville, CA WFMI / Point Loma Henry's
2 in Denver, CO WFMI / Capital Hill WO, Wash. Park WO, Colorado Blvd. WO
West Hartford, CT WFMI / West Hartford WO
Coral Gables, FL WFMI / Pinecrest WO
Miami, FL WFMI / South Beach WO
Boston & Woburn, MA WFMI / Medford WO
Portland, ME WFMI / Portland WO
Omaha, NE WFMI / Omaha Village Pointe WO, Omaha WO
Henderson, NV WFMI / Henderson WO
Columbus, OH WFMI / Upper Arlington WO
Lake Oswego, OR WFMI / Hillsdale WO
Portland, OR WFMI /Hillsdale WO, Laurelhurst, Division, Freemont
Nashville, TN WFMI / Hillsboro Pike


From this table above, I see 23 OATS/HM stores that should see even more intense WFMI competition in the coming years. And 23 is not an insignificant number to OATS. Even if you count their planned stores, 23 is 18% of their store base.

{Note, I am short shares of OATS. I actually shorted some more at $13.97 on Friday}

Tuesday, July 26, 2005

stock notes

OATS continues to defy my demands that it sink like a stone. $13.39? Que?

EGOV has hung in there for me over the past few weeks. I'm thinking of closing out if we can get near $5.25.

When's the last time IGT traded up after an earning's announcement? The FY06 guidance got 'em this time. I still have to listen to the cc but I wouldn't be surprised to see the $25-30 range into next year.

I've been conducting a fair amt. of research on ERTS. Co. had some poor guidance after the bell today and will get whacked tommorrow. I'm very interested in the low 50's. We'll see if we get there once the dust settles.

CNET and EBAY are on my list as potential shorts. I'll think hard about CNET in the $13's and EBAY in the mid 40's.

GYI and WWY continue to execute. Don't know if I'll ever get a chance to pick up either on sale.

Paul Kasriel

has a piece from July 22nd that's worth a look. In the article, Kasriel talks about the LEI and the FFR to 10 yr. spread. He is also changing his tune as to when the Fed will go on hold. Based on recent Greenspan comments, Kasriel thinks 4% on the FFR is a possibility.

Two takes on China's

RMB revaluation.

Stephen Roach's "China's Rebalancing Tactic" and Marshall Aeurback offers his International Perspective

Sunday, July 24, 2005

CoStar Group (CSGP) Q3 CC review

Here are my notes from the cc. If you see any errors, please email me and I'll look into them. My comments are in parentheses.

  • Renewal rate at 93.5% in 2Q05, up from 91.9% in 2Q04. Very excited about signing Equity Office Prop. Trust to 3 yr. deal. (Renewal rate metric is impressive but it doesn't reveal whether an existing customer might have opted for lower priced offering.)
  • Retail (NRB) product should be ready in mid-2006. CSGP is in the process of photographing shopping centers now. Went to a shopping center conferance. Andy calls it an "awesome opportunity." (Awesome opportunity? More like big selling and marketing $$$.)
  • CSGP currently upgrading research software. Also closing OH research center. 5% of total headcount cut. Taking charge in Q3. Should result in $1 million in annual savings.
  • Q2 revs at 32.9MM, up 4.9% seq. and 19.7% yoy.
  • 2nd half of the year, new markets will contribute.
  • 538 new customers in Q. Inside sales team responsible for 18.5% of sales in Q. Inside sales team has lower personnel costs than sending folks out into the field.
  • Co. is launching a Free Trial Offer of Costar Property. Offer will be a direct mail piece sent to 20k prospects to use product for 90 days with an incentive to sign on for 1 yr. (This is interesting. And maybe it's an effective aquisition tool. But it does get me thinking of saturation in the existing markets.)
  • Outlook for Q3--4.5-5.0% seq. growth. $135MM in rev in 2005--represents 20% total growth and 19% organic. EPS guidance for Q3 is 3-4 cents (including charge) and 14 cents for Q4. Expecting 68-69% GM's in Q3 and Q4 and $1.5-2.0MM in capex in Q3/Q4.
  • For the most part, the sycophantic analysts tossed softball questions to Andy and Frank. But I was surprised when 1 of the CSGP perma-bulls from Needham asked a good question. He basically asked what the next thrust for the co. will be after the 21 new markets are tackled. Andy talked about really focusing on the retail side ("big potential"). To me, this also points to saturation of the commercial RE market and slowing in 2006-7. To be clear, I don't think CSGP rev's will fall off a cliff. But if it's a 10-12% top line grower and the massive operating margin expansion doesn't happen (25%+ ), get ready for a haircut.
  • Andy and Frank don't give this number, but it's there to calculate in the pr. Operating margin this Q equals 3.7%, Q2 2004 was at 5.0%. Wrong way, boys.

Thursday, July 21, 2005

portfolio notes

I closed out my Symmetry Medical position today (SMA). Got in just below $17 and got out at $24.76 today. I still very much like the co's position and prospects, just feel it's fairly valued here.

Good to see MSO getting beat up a bit this week. Same goes for GM. On a different note, analysts can't seem to get enough of OATS. Bear Stearns initiated coverage with an Outperform and $15 TP after the close. That's probably worth a few percent tommorrow. Also, IGT got whacked today on weak guidance for FY06.

Wednesday, July 20, 2005

I saw the RBC upgrade note on OATS

The analyst bases this largely on evidence of improving sales trends based on his store checks in California and Colorado. Analyst also talks about positive private label impact. We'll see how things shake out when the co. reports in the next week or two.

Good article on the explosion

GM managed to lose

over $1 billion in it's North American Auto unit. Well done.

Monday, July 18, 2005

couple of new names that I'm following

I'm taking a closer look (long) at MMM, ERTS, E, STZ and CBI

new move

I bought some Jan 2007 GM puts today. I think Kirkorian's stake plus news of some possible UAW healthcare concessions are more than baked in the share price at this point. I also think investors are wrong to think "2005 is a write off but 2006 will be great for GM." The U.S. Big 3 continue to lose share to the Japanese despite the fact that the Big 3's incentive structure is well above that of Honda or Toyota. Further, while the "employee" sale at GM will certainly move the metal, it will also certainly pull sales from 2006. This extra incentive also serves to push GM's level of discounting even further out of whack. Finally, what will GMAC (an actual profitable unit of GM) look like as interest rates inevitably rise?

The NY Times

throws some cold water on MSO shares (registration req.).

Note: I am short shares of Martha Stewart Omnimedia (MSO)

Saturday, July 09, 2005

news in brief

NIC Inc. (EGOV) has been on a roll of late. Shares have moved from the 4.20's a month or two ago to $4.90 today. First Albany recencty initiated EGOV with a Buy and Stifel had some positive things to say here (see p. 18)

{Note, I am long EGOV}

Sontra Medical (SONT), my favorite microcap, has also been on a tear over the past few weeks, posting back to back strong days last week on strong volume. Investors are anticipating news in regards to SONT's $3 million partnership payment from Bayer which, if all goes well, should happen over the next month or two. SONT put out a positive PR two weeks ago that talks about setting up an advisory board to provide guidance in regards to their continuous non-invasive glucose monitoring device for use in ICU settings. I see this as a positive indication that Bayer and SONT are moving forward with this device's development.

{Note, I am long SONT}

Not all went according to plan last week. My favorite natural foods retailer, OATS, got an upgrade from RBC on Friday. The analyst cites strong sales growth at the company. Super.

{Note, I am short OATS}

Wednesday, July 06, 2005

another short

One stock that I mentioned yesterday was Costar Group (CSGP), an information provider to (primarily) the Commercial RE market. I went short today at $46.36. I see the reward here as 3x the risk, with upside to maybe $50 and downside to the mid-$30s. Here are some of my thoughts:

Valuation is steep--Whether you look at P/E, P/S or P/FCF, CSGP is flat out expensive.

The major IB's that cover CSGP (with the exception of maybe Deutsch Bank) are all strong supporters of the stock and feel that this is a strong operating leverage story. At least two of these guys talk about 30%+ operating margins like they're around the corner. In recent quarters, operating margins have been in the 5-6% range. These analysts basically take what the CEO/CFO feed them and run with it.

The "highly profitable exansion into regional markets"(e.g. Richmond) has been a story of CSGP for the past year or two. We're told that investment in these areas (collecting data on properties, pre-selling product) has been a drag on co. margins. I don't question that OM's can improve with time (not to 30%ish) but I do question the top-line benefit to the regional rollout. What kind of demand from cities like Richmond can CSGP really expect? The big cities across the U.S. are already Costar markets (e.g. LA, NY, Chicago, DC).

If there are all these great opportunities in commercial RE in second tier cities, why go and make a retail acquisition. Seems like smoke & mirrors here.

Selling to institutional clients like Investment Banks hasn't worked out. The CEO was pumping this segment a few CC's ago but no longer mentions it.

Do your own DD of course, but I think CSGP is one worth investigating.

another article from Dr. Faber

Tuesday, July 05, 2005

Running out of longs

I decided to close out my Apache position today at $68.36. I remain a long-term energy bull and I'm hoping to re-enter APA and a few others after a correction. I'm also getting close to closing out my Symmetry Medical (SMA) position. I'm looking for the high $24's.

Most of the names that I'm currently focused on are short targets. Besides my 3 current shorts (SHLD, MSO, OATS), I've been looking at CSGP, RSTO, CPWM, CNET, GRU.

Monday, July 04, 2005

Jim Puplava interviews

Dr. Marc Faber over at financialsense.com.

Jeff Matthews talks

about his visit to KMart