This was just sent to me by a friend.This is a newsletter that is put out called Bidding on Bay Street.The URL is at the bottom of the page and I believe they have a 30 day free trial.It is excellent and goes the extra mile IMHO.Here is a reply basically to the Taurus article.
Subject:
*BAY $TREET BYTE$* December 4
Date:
Fri, 4 Dec 1998 09:52:04 -0400
From:
bidbayst@nbnet.nb.ca (bidbayst)
To:
bidbayst@nbnet.nb.ca
*BAY $TREET BYTE$ December 4: BID.COM
Commentary:
BBS is so backlogged with calls and e-mail requests for information this
week it is impossible to deal with them all and it is leaving very little
time to do the work BBS is meant to do. Readers must not confuse BBS with
Investor Relations for individual firms followed by BBS. Day to day
concerns are best answered by IR or management of these firms.
I try to provide ongoing commentary/analysis of significant actual events,
as they are announced and when I am able to provide additional background
and information, obtained most often through interviews with top management.
With several different companies to follow and many very active in terms of
developments, the task of keeping readers well informed is very time
consuming. I do try to deal with individual questions as time permits but
there will be occasions such as the current period when it becomes
impossible. The frenzied trading of BID.Com over the last couple of weeks
coupled with media attention is definitely part of the problem. BBS takes a
mid-long term approach and follows companies closely but I will not be able
to respond to every article that comes out in the press.
BID.Com (BII,TSE:$3.05)
Featured August '97 @ $1.10
With so much positive press of late on BID.Com it is to be expected there
would be nay-sayers. US internet players certainly receive their share and
it is easy to pick on a group of stocks with very high valuations and little
or no profits. After running from a low of 60 cents a few weeks back to a
short flirt with $6 (i.e. an overnight 10 bagger!) the share price is half
its all-time high and so volatile it doesn't take much to move it one way or
another.
OUT OF THE WOODWORK, EH?
I have had questions from readers about two promoters - one out of
Vancouver, one out of Toronto - who have made claims to being behind the
rise of BII stock. Neither are known to the company and both are now
spreading negative rumors and claim to be shorting the stock. It is a
parasitic industry and many players have absolutely no regard for the
companies they feed upon, to the long term detriment of the health of our
technology sector and the general Canadian economy.
Yesterday's decline in BII's share price can be attributed in part to an
article published on the front page of the financial section of the new
National Post citing a very negative report. The report is said to be
written by an "analyst" from Taurus Capital Markets, Ltd., a lower tier
Toronto house that many people I asked have never heard of. According to
the article the Taurus employee "has apparently issued a research report
stating that the shares of Bid.Com International are well overvalued and
completely out of whack to other comparable Internet stocks such E-Bay and
OnSale." An expert on the internet!
Now in Canada we know how hard it is for a small company to get an analyst
report written unless it is by a brokerage firm which has underwritten a new
issue for the company. Interesting that Taurus has published an "analyst
report" and even more interesting that the "analyst" has neither met nor
interviewed Paul Godin / Jeff Lymburner, or visited the company's head
office in Toronto. What motivates writing such a report?
I am very surprised the National Post has published this type of article
without first establishing the credentials of the report's author or
contacting someone who may have been able to provide a balancing view. Two
BBS callers yesterday said they would be making a complaint to the Post,
possibly canceling subscriptions. This type of coverage is more what one
would expect to see in the Vancouver business tabloids than a national
newspaper.
There are many legitimate concerns about the future of the internet and many
investors will prefer to stick to investments better understood by analysts
and to companies with a proven track record.
APPLES AND BANANAS
The main gist of the negativity seems to stem from a comparison of
historical gross margins between BII, EBay and ONSALE. The most obvious
problem with the analysis is that it compares 'apples and bananas'. BII,
EBAY and ONSALE each have a completely different business model with
completely different overhead, inventory management and cost structures.
There is a fundamental flaw in comparing gross margins of companies with
very few similarities. It would be a spurious argument to compare a grocery
chain's minuscule gross margins with a clothing manufacturer's high margins.
The grocery chain could be very profitable while the manufacturer could be
going bankrupt in spite of having far higher gross margins.
YOU FAIL!
There is a story going around that Warren Buffet has suggested MBA students
be asked to write a paper providing a valuation formula for internet stocks.
Any student handing in a paper automatically fails!
If e-commerce on the Internet is, as many have recently suggested, a
business revolution, growing at a rate faster than ever before seen in
history, there is no way to create a viable valuation formula for the
industry. An investment in an internet stock is undeniably speculative and
is an investment in the future, not in recent but past results.
The first step toward success is "being there!" and BII management has
arrived, against great odds and with what I consider to be one of the better
strategic business models in the industry. Developing the superb technology
platform was only the beginning. Building strategic alliances for future
growth and diversification, buying the best advertising space, negotiations
with prospective suppliers, future global licencees etc. has been costly and
time consuming but very necessary, or the company may as well have quit and
gone home.
ULTIMATE IRONY
This same "analyst" has been quoted in the Post re BII before saying "This
is Canada's version of Internet mania -- where people are buying this
without understanding the company's business." Interesting statement from
someone who has not spoken to the company's creators. Yesterday's article
speaks of "fools" and "greater fools". The author may live to regret this
analogy.
But I do agree very few investors have a good understanding of BII's
business model and where the company will go from here.
If the author of the negative research article had any detailed knowledge of
the company he would have known that Paul Godin is well aware of the fact
that profits in the Internet industry are a genuine concern and stated in
his recent NBN interview that "in 1999, more and more companies in this
sector will be pressed to address these concerns or to start showing
evidence of earnings or a potential to produce earnings." According to
Godin, BII is very much committed to being earnings positive in 1999: "there
is no question about it, that is one of our fundamental goals and I think
we're going to be very close and we are going to do it very early. I also
think we are going to be one of the first companies to do it." In terms of
overall revenues BII is conservatively forecasting revenues of C$50 million
in 1999.
The post article makes no attempt to look at BII's business plan where going
forward license fees, accompanying residual royalties, advertising revenues
and business-to-business revenues will carry high profit margins compared
with those of consumer or e-tail sales. High traffic volumes on BII sites
are attracting demand from advertisers and ad sales provide high margin
income. Partner Rogers Media is now handling BII's advertising sales in
Canada. There is every reason to believe BII can deliver profits if it is
successful carrying out the present business plan.
There is no mention of BII's expansion plans, or the goal to be global: "We
have actually been working in Europe now for two years with a number of
people, including the Bank of Ireland and we are very close to setting up
our operations there. Our goal is to be global!" There is no mention of
BII's new exclusive, global distribution agreement of sound cards, the most
recent example of BII's move into high margin, specialty items that lend
themselves very well to internet sales.
UNDERSTANDING THE COMPANY'S BUSINESS
Please excuse the repetition, but for anyone interested in understanding
BII's business (and for stock traders and short sellers this information is
of absolutely no consequence) I will repeat comparisons from recent BBS
updates. For speculative 'investors' who must weigh the risks and the
possible rewards of an investment in this industry, an understanding of the
company's business will be helpful in riding out the inevitable turmoil in
the markets for this sector.
"BII is a very unique entity and cannot be easily compared with any single
US leaders. The following are a few points of comparison/differentiation:
1) Onsale takes an inventory position, BII does not. On occasion this may
enable Onsale to take advantage of " spot buys", but it also makes them a
slave to their inventory. This is particularly risky in the computer sector
where there are frequent manufacturer's price decreases.
2) BII is evolving towards a diversified revenue model more quickly and
effectively than either e-bay or Onsale. This includes licensing,
business-to-business, advertising, retail auctions and an increasing
emphasis on " event " type marketing such as the Superbowl promo now
running. Diversification is also expected in terms of moving into global
markets and markets reached through various cable TV providers.
3) Although the e-bay consumer to consumer " classified " model generates
enormous traffic because of the sheer number of listings, there can be a
commensurate number of problems as well. Rumors of illegal products being
offered, ongoing hassles with dishonest vendors create a potentially large
liability and management issues.
4) E-bay appears to be oriented more towards profitability than to sheer
volume and BII is moving in a similar direction, albeit with
a different business model.
5) Management believes BII technology and infrastructure is the most
adaptable to licensing, or migration to other applications (auction-in-a-box)
BII can increase revenues with very small increases in
technology overhead or personnel costs compared to competitor's."
>From the update on the NBN interview of Paul Godin:
"A 'TRIPOD' OF TOOLS
Godin describes BII as a company based on what he calls a "tripod of tools".
One leg of the tripod is what he calls a "Company Store" where the consumer
goes to WWW.BID.COM to participate in the auctions. This would be the main
'e-tail' or business-to-consumer side of the enterprise, well established
and growing in the US and emerging quickly now in Canada with the start of
the Rogers Media Inc. campaign.
The second leg of the tripod is the 'business-to-business' (B/B)segment
where BII has been laying the groundwork behind the scenes, simultaneous
with the launch of e-tail auctions. No announcements have been made of
actual contracts for B/B yet but the next year should see a whole series of
news releases in this area. As noted in yesterdays *BYTE$* interview with
VP Jeff Lymburner "Business-to-Business applications and licensing
agreements are expected to contribute the larger portion of revenues and
profits to BII in 1999. Both represent high margin opportunities that could
make BII one of the few profitable Internet companies sooner than later.
There are a great number of opportunities for non-competing industries to
take advantage of E-commerce and BII is targeting this potential to enter
new fields and position the company for very rapid growth."
Licensing of BII's unique award winning technology platform will form the
company's third tripod leg and licensing agreements are expected to find
markets in both B/B applications in North America and to allow countries
abroad to enter Internet commerce markets with great ease."
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
URL: biddingonbaystreet.com
Bidding On Bay Street (BBS), Copyright 1997, is published by Van Wyck
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