======== UBID CEO CNBC SquawkBox Interview Transcript =========
January 5, 1999 Transcript # 99010500-Y51 INTERVIEW Business
LENGTH: 1454 words
HEADLINE: SQUAWK BOX - uBid -Chairman & CEO - Interview
SPEAKER: Gregory Jones
BODY:
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RON INSANA, CNBC SQUAWK BOX ANCHOR: Well, it didn't take long for uBid (UBID) to make a name for itself on Wall Street. The company operates as an online auction house featuring computers and consumer electronics for more than 90 manufacturers and other retail distributors. Customers register for the auction at uBid's Web site where they also enter and monitor their bids. It's a formula that appears to be pleasing Wall Street. Since being spun off from a company called Creative Computers a month ago , shares of uBid have surged from $27 to $189, pulling back yesterday to close at 134. Joining us now to tell us more about his business is Gregory Jones. He is chairman and CEO of uBid who joins us from a very cold and snowy Chicago bureau. Mr. Jones, good to see you; thanks for being with us today.
GREGORY JONES, CHAIRMAN & CEO, UBID: Thanks very much Ron. I hope this interview isn't as chilly as it is here in Chicago. It's 25 below and a 45-minute trip took me three hours, so I'm glad to be here and thanks very much.
INSANA: Well we appreciate the effort. Thanks for coming by. Let me ask you first a question we have posed to other Internet retailers or distributors of products. And what is to keep some of the companies whose products you sell from going direct to the consumer via the Internet and offering even more competitive prices than you do?
JONES: Well, I think first of all, you need to understand, we specialize in access, overstock and refurbished product. And that traditionally is product that the major manufacturers are looking to move not through their mainstream channels but through an alternate channel or alternate distribution channel. And we find that they're looking to move that product very very quickly which means the auction format is ideal for that situation. So what we found in our environment is the manufacturers are willing and really like the non-channel conflict and the ability to move that product very quickly using an auction format.
FARRELL: Mr. Jones, it's Vince Farrell. Do you take an inventory risk or does that stay at the manufacturer level?
JONES: Well, we do both, actually. Predominantly right now we take inventory risk but we also do what we call revenue sharing with our vendor partners. And that's a situation where we actually bring the product into our own distribution center and move it out and take a cut off the top or an agency model. So we do both, but primarily right now we do take the inventory risk or do handle the product ourselves. But in fact, as we gain scale and gain volume, we're looking, more and more manufacturers are looking to do revenue sharing with us.
INSANA: Well, right now, taking the inventory risk. What does your model call for in terms of inventory turns? I know it's relatively recent for you, but what have you been doing?
JONES: Roughly we're at about 20 turns. And we have had on all of our inventory risk is actually in the margin itself, because everything sells. Everything starts at $7. So to date, we've had no inventory issues or problems. But it's about 20 turns right now.
INSANA: David Faber.
DAVID FABER, GUEST HOST: Sir, I'm just curious as to your reaction to the stock price itself after the spin-off as we said, an incredible rise. Were you somewhat surprised or perhaps completely aghast at how quickly your stock picked up momentum?
JONES: Well, of course we were a little surprised. But what I can say is we can't worry about the stock price, OK. Investors need to make good business decisions. What they're counting on us to do and what our focus is is to run a great business, focus on being a leader in the channel and worry about customer service issues and serving customer issues. That's really where our focus is going to be as we move forward, and becoming a lead player.
FABER: Now you were spun off from Creative Computers. The 80% that that company still holds has not yet been distributed to shareholders, is that correct?
JONES: That's correct.
FABER: That will be fairly soon though won't it?
JONES:No sooner than 180 days, but that's the anticipation right now.
FABER: And at this point I know that Creative Computers trades under the symbol MALL, has a market value that is well less than half the market value of uBid even though it holds 80% of the company. Isn't that a bit of a discrepancy?
JONES: Well, again, we can't, I can't understand some of the market propensities and market purchasing. But what I can understand is our desire and need to build a great company and a great business and focus on our customers, that's really where we're focused right now.
JOE KERNAN: Mr. Jones, it's Joe Kernen. How big is your stake in uBid or MALL?
JONES:Mine personally?
KERNAN: Yes.
JONES:I have options, OK, in the 350,000.
KERNAN: uBid?
JONES: Right.
KERNAN: In uBid.
JONES: That's correct.
KERNAN: Have you been able to sell anything yet?
JONES: No, no, I am in it with the investors and I have a five-year vesting period. So we're in it to build a long-term great business and be a leader in the channel.
KERNAN: You haven't sold anything with no plans to sell in the near future?
JONES: Not that I foresee.
FABER: Mr. Jones, if I could just get back to your business model. You were answering Vince Farrell's question. What are your hopes in terms of operating margins ultimately? What percentage of your revenues do you believe will go to the bottom line when you're operating where you would like to be?
JONES: Well, again, I don't like to forecast into the future, but what I will tell you is, we do see a profitable business down the road. Our emphasis today is to build a great company with a great brand. And what that means is we'll do what it takes to do that because we feel down the road we can have a very solid business. I will point to a business model, OK. There's competitors in our industry that bring down 6%. So I would ask your investing audience to look at those type of companies and we hope we can at least get to those areas.
FABER: Can you give us any guidance, since you point to how investors should think about your business and your business model, can you help us come up with the benchmarks that investors should use to value a company in a period where most firms in your business have either some revenues and no profits, no revenues and no profits, or some revenues and some profits? What benchmark should we use to take a look at a firm like yours?
JONES: Well, I think what's important, OK and again is, we have an emphasis on focusing on the customer experience and making sure the customers are taken care of. What I think is important, we like to look at the number of new users coming on to our site and into our business. So traffic and of course our registered users is important. I also feel that revenue growth and repeat business, those are the key metrics. If we're serving our customers well, our repeat rate should be substantial and we want to continue to build the business off of that repeat rate. So I think those are very key metrics in any Internet business but in particular, our format and our space.
INSANA: All right, quick, final question from Vince Farrell.
FARRELL: Mr. Jones, real quick one. You've got I think about $25 million in cash on the initial public offering.
JONES: Right.
FARRELL: What's your burn and any financing needs in the foreseeable future being 1999?
JONES: Well, we think that $25 million, given our turns and the ability to move product, we think that $25 million will take us pretty far into the future. We're always open to new financing alternatives and opportunities if those come along. But we think that take us pretty far into the future. I can't say we won't raise additional capital in the future. But right now I think we're pretty well set to have our business plan executed and move forward very, very quickly to own this space.
INSANA: All right, Mr. Jones we appreciate your spending the time. I understand a state of emergency has been declared in Illinois; thanks for going out on the road today.
JONES: Well, listen, gentlemen. I thank you for being on and appreciate your time today as well.
INSANA: All right, thank you very much. Gregory Jones is chairman and CEO at uBid joining us from our Chicago bureau.
END
|
