Saturday, April 10, 1999
The billion-dollar find that got away
My 'dog' stock is now cyberstar Bid.com: I still think I'm right
Paul Kedrosky
National Post
A sad story from the front lines of the new economy. In August of 1995, two faculty members from the University of Western Ontario and I visited the Toronto offices of a small company called Internet Liquidators. One of the faculty members was on the company's board of directors, and we were going to write a teaching case about Internet Liquidators' struggle to gain a foothold in the nonexistent market for online auctions.
The company's Toronto office was small and dingy; it was in an office tower near the airport. Internet Liquidators' tall, balding president, Paul Godin, looked dolorously cheerful, as if he was exhausted but, like Willy Loman, couldn't stop selling. As I recall, the low-rent site was close enough to the end of the airport runway that landing planes looked like shiny cigarillos sliding perilously close to Paul Godin's office window. I remember making much of that in the subsequent case I wrote.
Personally, I was more interested in the planes than the company. I had just finished working as an equity analyst and fancied myself fairly good at sizing up technology companies in a hurry. I went through my checklist: management -- get-rich-quick consumer electronics types; business -- auctioning off golf clubs and other useless flotsam online; capital -- slim to non-existent; and income statement -- not worth the words. And I could barely control a smirk at the name; it sounded like online pest control rather than an online auction.
Not long afterward, the cash-starved company went public as a bulletin-board stock on the Toronto Stock Exchange. Its stock sank slowly into the sub-dollar territory, and sat there moodily. It became a running joke around Western: "How's ILI stock doing?" we would ask our board-member colleague. "Are you going to be able to retire soon?"
While I didn't watch it closely, the stock hovered in that sub-dollar zone for two or three years. Now and then I would hear something about it, or hear about the faculty member who was on the company's board, and I would think of Internet Liquidators again. I remember being surprised that the company was still around, like hearing about a distant relative that you had been told had terminal cancer five years ago, yet there they were last week at the local 7-Eleven, haggard but alive.
Last July, Internet Liquidators changed its named to Bid.com and moved from the over-the-counter cesspool to the Toronto Stock Exchange itself. Most of you know the rest of the story. After languishing a little while longer in the sub-dollar territory, the company zoomed from $1 to (as of today) an astonishing $30 on the TSE. The money-losing online auctioneer that once had such a horrible name was suddenly worth a billion dollars, nimbly ankling its way onto the TSE 300 index. Not bad for a company with a $24-million revenue run-rate and accumulated losses in the tens of millions of dollars.
Before being reasonably objective about why all of this happened, a little self-flagellation. I was a legal Bid.com insider. I knew things about the company that others didn't know -- about its plans for the online auction market, for example. But in my case, knowing more proved to be worth less. Having met the company's principals, I made a wrongheaded and sniggering appraisal of them. I never bought shares in the company. Even when I saw Bid.com's stock climbing last winter and into this spring, I just stood idly by, thinking: "Those are the same guys I met when they were Internet Liquidators."
So why did Bid.com's stock take off? Like many Internet stocks, it was an arcane and alchemical combination of things, including restless Internet investors, an infatuation with auction stocks, and darn it all, that new name -- Bid.com. In combination, those things turned edge-of-disaster Internet Liquidators into Bid.com, the super-stock for Internet-starved Canadian investors. And with U.S.-based competitors like eBay, with its $21-billion (US) capitalization, getting yards of press and trading at vertigo-inducing multiples of sales and earnings, the tiny Bid.com was a Canadian investor's only hope.
Is Bid.com worth a billion dollars? Of course not. The company has negligible revenues, and despite its incessant claims about being a technology leader and soon taking on auction powerhouse eBay, Bid.com is a yappy and forgettable little dog in online auctions. It is insignificant beside eBay, Yahoo, Amazon, or any of the other players in this outrageously crowded market. What's more, the online auction market itself is rapidly turning into a feature rather than a business -- a commodity, something many sites do on the side for visitors, not a main business (with a few large and notable exceptions).
I'm right. I know I am, and I'm much more confident about it than I was about that snap decision I made four years ago. Does that make me smart? No, as a matter of fact I feel pretty stupid. If I had put $10,000 into Bid.com (nee Internet Liquidators) four years ago, it would be worth $400,000 today. Say what I want about Bid.com's current prospects, but I missed it by a mile last time around.
So will the stock tumble today, tomorrow, or maybe next month? Your guess is as good as mine. It may not tumble at all, but that will have more to do with the excess of demand over supply for Internet stocks than it does about Bid.com. Internet stocks are closer to polls than traditional equities: They are where excited investors get to vote how much they love the Internet -- and that's okay.
Because don't get me wrong -- it's not all emotion. The folks at Bid.com are smart. Paul Godin and his crew are far better at what they're doing than I ever gave them credit for, far better than I'd be. But they're also not worth a billion dollars.
But that doesn't matter right now. Bid.com, its shareholders, its management, and yes, its board of directors, have done what they are supposed to do as a public company: They have created wealth. That University of Western Ontario faculty member who was on Bid.com's board of directors? He didn't get tenure at Western, and left under a cloud shortly thereafter. Judging from the unexercised options in the company's most recent prospectus, his holdings are worth around $1.4-million. Remind me again, who's the smart one?
Paul Kedrosky is an assistant professor of business at the University of British Columbia.
nationalpost.com
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