Friday, April 18, 2014

A Quick Look At Some Recent NASDAQ IPO Financials

Sportsman's Warehouse (SPWH)
Priced: $9.50
Current: $9.75

This company owns & operates warehouse stores specializing in outdoor gear, mainly in the western region of the country.

Quick look at the financial data - as reported in S-1/A - April 14, 2014

February 1,
2014
February 2,
2013
January 28, 
2012
January 29, 
2011
(in thousands except percentages, number of stores and square foot data)
Consolidated Balance Sheet Data:
Total current assets
$176,316  $143,511  $111,911  $92,649  
Total assets
224,229  166,563  155,026    122,677    
Long-term debt (including current portion), net of discount
260,184  124,808  59,485  69,576  
Total liabilities
345,325  208,407  104,694  106,266  
Total stockholders’ (deficit) equity
(121,096(41,84450,332  16,411  
Total liabilities and stockholders’ equity
224,229  166,563  155,026  122,677  
Other Data:
Adjusted EBITDA(2)
$70,351  $59,039  $31,546  $17,326  
Adjusted EBITDA margin(2)
10.911.28.45.6
Number of stores open at end of period
47  33  29  26  
Total selling square feet at end of period
1,668,227  1,207,920  1,063,330  957,832  
Same store sales growth for period(3)
(3.7)% 25.413.121.0
Cash dividend declared per common share (on a pre-split basis)
$8.73  $10.39  $—    $—  

YUK! This is about all you need to see right? The company has gone public probably because the total liabilities is about double the total current assets. With margins in the < 10% range, it's going to be difficult for the management to ever dig the company out of a financial hole.

Weibo Corp (WB)
Priced: $17.00
Current: $20.24

Essentially the China version of twitter. The company limits characters to 140 similar to twitter.

Here is some quick financial data via Weibo's F-1/A filing on April 14, 2014

  As of December 31, 
   2012  2013 
   (in $ thousands) 
Selected Combined and Consolidated Balance Sheet Data:
   
Cash and cash equivalents
   2,906    246,436  
Short-term investments
   119,848    252,342  
Total assets
   205,558    606,934  
Amount due to SINA
   393,391    267,722  
Investor option liability
   —      29,504  
Total liabilities
   419,466    370,263  
Mezzanine equity
   —      479,612  
Ordinary shares
   36    37  
Additional paid-in capital
   21,781    31,352  
Accumulated deficit
   (236,736  (274,851
Total shareholders’ deficit
   (213,908  (242,941


You can see the incredible growth this company has achieved in the last year. They've virtually tripled total assets in 1 years time, which is typical with young(er) tech companies. Essentially you are making an investment in the Chinese social media scene. While possible, it's likely this service will only gain traction in one region of the world. Personally I'd only invest in this company if you want exposure to the social media advertising market in China.

Grubhub (GRUB)
Priced: $26
Current: $35.95

Remember Takeout-Taxi? This is basically the same model, just with a mobile app.

Quick look at the financials as posted April 2, 2014 in the companies S-1 filing.

   Year Ended December 31, 
(in thousands)
      2011          2012          2013     
           
Statement of Operations Information:
    
Revenues
  $60,611   $82,299   $137,143  
Costs and expenses:
    
Sales and marketing
   17,198    26,892    37,347  
Operations and support
   13,961    18,165    34,173  
Technology (exclusive of amortization)
   5,651    10,172    15,357  
General and administrative
    9,777       12,249      21,907  
Depreciation and amortization
   4,033    6,089    13,470  
  


  


  


 
Total costs and expenses
   50,620    73,567    122,254  
Income before provision for income taxes
   9,991    8,732    14,889  
Provision (benefit) for income taxes
   (5,220  813    8,142  
  


  


  


 
Net income
   15,211    7,919    6,747  
Dividends on Preferred Stock
   (334  (402  (1,073
  


  


  


 
Net income attributable to common stockholders
  $14,877   $7,517   $5,674

The company attempts to bury how poorly it's doing financially, but notice how net income has been cut in half in 2 years as the company scales up. That's not a good sign. Additionally the business model isn't exactly iron-clad - so a clear winner in the space may never emerge.

Monday, April 7, 2014

California Online Poker Revenues Could Be A Game Changer


  • Currently, Delaware, New Jersey and Nevada offer real-money poker & other casino games online to customers who are inside that states boarders.
  • The crown jewel is considered the California market, due to the states large population
According to Online Poker Report, revenues for the month of February 2014 for the entire Nevada market were $824,000 dollars. Again, that is revenue - and not an indication of profit (if any). Furthermore, in 10 months the state has generated $8,520,000 in online poker revenue. This figure is entirely online poker revenue, as Nevada only offers customers the chance to play poker - and not other games like slots, keno or blackjack. 

Delaware and New Jersey offer the opportunity to play casino games like blackjack, so the revenues they report aren't a direct comparison to the California market, who are purposing poker only online games.

California Online Poker Revenue Predictions:
The wide discrepancy in online poker revenue projections just shows how difficult it is to forecast the future of the online poker market in California - however even the conservative estimates would make California the single largest online poker market in the United States by a large margin.

Nevada Population: 2.759 Million (2012)
California Population: 38.04 Million (2012)

Nevada 10/month poker revenue: $8.52 million / 2.759 million people = $3.08 per person. 

If California converted at the same rate as Nevada = ~ $117.163 million (38.04 million people x $3.08). So even the most conservative estimates for online poker revenue would have the state of California generating revenue per person that is roughly double the rate of Nevada.. Some of the factors that would drive this type revenue generation is that poker is a game that thrives on large player pools. In other words, the larger the number of people playing improves the poker games and therefore increases the revenue potential of an online poker website. 

Major players who might benefit:

California Indian Tribes & Poker Rooms - Most aren't public or investable companies, but here is a list of tribes trying to keep PokerStars out of the market so they can benefit.

PokerStars - The largest online poker website globally is a crown worn by PokerStars. The company used to dominate the un-regulated United States market before the Department of Justice shut down PokerStars and other online poker websites from operating in the US market. If PokerStars was a public company, their balance sheet would probably have a sizable "goodwill" asset on record considering they bailed-out FullTilt Poker in July 2013 and paid the US government at least $731 million. If it wasn't for PokerStars, FullTilt customers would have never gotten millions of dollars off the site. Now PokerStars is trying to weasel their way into the California market, which would bring significant competition to any other operators who don't have the experience or brand recognition that PokerStars has with customers.

Bwin.Party Poker (BPTY) - Once upon a time, Party Poker was a dominant player in the United States poker market. PartyPoker left the market (unlike PokerStars) just days after the US Government passed the Unlawful Internet Gambling Enforcement Act in 2006. This move has aided the company in returning to the United States market in New Jersey. While the California market might be isolated to tribes or card rooms that already have a presence inside the state, there's an outside chance that PartyPoker could provide software to a license holder inside the state. 

888 Poker - Similar to Bwin/Party Poker, 888 Poker left the United states market in 2006 and that has allowed them to re-enter the United States market with little resistance. They currently offer real-money poker in New Jersey - and could possibly provide similar services to a client in California.

Zynga (ZNGA) - The companies message regarding online poker has been mixed. They too could provide software and/or potential leads to an existing tribe or card room in California if they weren't able to acquire a license to operate a real-money online poker site themselves. I believe Zynga won't capitalize on the real-money poker trend and stick to play-money/social poker instead. 

Sunday, April 6, 2014

Pay Day Loans, what's the market looking like?

At one point the pay day loans industry was a booming market, from 2009 to 2012 the industry saw rapid growth and companies were turning over absolutely ridiculous amounts because of the dying need for short term credit. After applying for a pay day loan the cash could arrive at the applicant's account in around just 10 minutes and provided access to quick cash to allow borrowers to deal with financial emergencies until they next got paid. There was nothing really like it on the market at the time other than the likes of credit cards or overdrafts at the bank, but these generally took a longer time to process when borrowers needed a quicker solution in our current fast paced economic society.

The idea behind pay day loans was a great one. An applicant would apply online for the money, and if approved it would generally be sent to their account the same day. They'd then simply repay the loan on their next pay day along with any interest that had accrued. Usually the interest on these loans would be around 25% over the course of a month, and whilst that may seem expensive they proved to be a cheaper alternative than falling into an unauthorized overdraft with many banks. However unfortunately many borrowers began misusing the loans and not putting in enough prior planning before taking a loan out leading them to fall into debt. Some lenders were also partly to blame as they were said to be failing to carry out adequate affordability checks. Either way pay day loans began to get a bad name and in 2013 the OFT wrote to around 50 pay day lenders telling them to basically clean their act up or leave the industry. As a result of this many lenders did actually end up leaving the industry and it saw the first decline in the market for around 4 years.

So with the industry beginning to get a bad name what's the industry looking like as we move forward through 2014? 

Well, according to this site the industry is set to half in 2014 & that's because of 2 reasons. The first reason being that since the industry is getting such a bad name and constant stories of debt are circling it many people are becoming reluctant to turn to a pay day lender to borrow cash. Cheaper alternatives such as credit unions are being pushed more and more and borrowers are beginning to turn to them instead.

Secondly, the FCA have just recently took over as the industry regulators at the beginning of the month. They are introducing strict new rules which was originally said to drive at least a quarter of pay day lenders out the market however reports are now claiming that up to half of lenders may leave.

So the market doesn't appear to be looking too great as we move forward, however there is also the intention to bring real time data to the industry & this could potentially turn things around. Basically the industry has mainly received it's bad name from so many borrowers who have taken out pay day loans falling into debt. Well one of the biggest reasons for this is that lenders are not able to get a proper picture of the borrowers finances when they apply as the credit reference agencies they use are only updated around once a month. If real time data is brought to the industry then lenders would be able to see exactly what the borrowers finances look like and would be able to make a better decision on their loan application based on that. Now since this would mean better affordability checks in place it would mean less borrowers falling into debt, and less borrowers falling into debt would mean that hopefully the industry would begin to clear up it's bad name.

So whilst many may think the industry is doomed, I personally think that now could be the perfect time to buy some shares and enjoy a good return on investment towards the end of the year or early 2015.

Thursday, April 3, 2014

Trading SIVR Silver ETF For Beginning Traders

Whether you are day-trading or simply looking for a stock to trade on a regular basis, I find that physical metals are a great starting point for the beginning or intermediate trader/investor.

Why do physical metal ETF's good for beginning traders?

  1. For beginning & intermediate traders, a company stock will have many factors that can move the price up/down - and being able to identify all those factors is not easy for a new trader. You have to analyze the companies business model, competition, market conditions, products, employees, management, chart patters ... ect ... ect.

    Analyzing the demand levels for silver and other metals is a far less daunting task.
  2. I agree with Warren Buffet and others who view metals like gold & silver as something that isn't an invest-able business model. When you invest in gold or silver, the metal just sits there, waiting for demand to rise or fall based on factors that are outside the metals control.

    That doesn't mean you can't trade the metal as it rises & falls based on this demand though!

Remember, we are talking about the physical metal ETF's like GLD, SLV, SIVR ... ect. NOT the mining stocks of these metals. The mining companies are subject to price fluctuations outside where the underlying metal price is going - making them act more like company stocks, than a physical metal.

Fundamentals

Silver has been on a rather historic decline in price over the last year or so. Some investors believe the price of the metal has been manipulated by large banks, but the banks have (so far) have fended off those accusations. Regardless if the large investment banks are manipulating the metal price or not - a banks influence of the metal price can only go so far before other market factors start taking over.

The $20/ounce mark for silver is a significant because by most accounts, $20 is (around) what it costs the miners to actually extract the silver from the ground. In other words, if you can buy silver for under $20/ounce - you are paying less than what it actually costs to extract the metal from the ground today.

That's important because miners are only going to continue mining operations for a period of time while prices are at this $20 level. At some point, miners will decide to cut back (or cease) production, which could lead to a reduction in supply of the physical metal.

Technicals


Above is a broad view of the SIVR Silver ETF chart for the last 4 years or so. I like trading this ETF because inside a Charles Schwab account (and possibly other brokers) because you can trade this ETF commission free. That's actually an attractive way to trade silver because if you were to buy/sell the physical metal (like Silver Eagle coins for example) you'll always pay a premium over the spot price and a commission (or fee) when you sell it to a shop or on eBay for example. Remember however, this ETF does have expense fees - so it's not like you don't pay any fees, but when you are actively trading, saving $8.95 each way can add up to significant savings.

At the time of publishing this article, I actually had a small position open in SIVR, as illustrated by the green line. I have bought SIVR at this level, and sold at higher levels many times during the last 9 months or so, as SIVR has consistently touched the ~ $19/share level, only to bounce up into the low $20's a short time later. It appears that this $19 level is acting as a level of support on the downside - making it an attractive entry point for trading.

Some things to keep in mind however: the trend is DOWN - and Silver can certainly fall below the $19 level despite it being more expensive to mine the metal out of the ground at that price. But remember, we are trading this ETF, not buying & holding it like a stock or mutual fund in our retirement account. Remember to set stop-losses at technical levels below $19 if you don't want to get caught in an acceleration of the downtrend. Additionally, I plan an exit price, usually only 2 or 3 percentage points above where I bought the shares because silver has been somewhat range-bound the last few months. 

Conclusion
  1. Trade Silver with a plan in place. Pick a price in the $19 range to enter your trade, but always plan your exit price at the same time.
  2. The trend is down. Always place stop-losses in order to limit any further downside move.
  3. You won't get rich trading this stock, we are anticipating short, 1 - 3 point moves during our trade.
If you keep these things in mind, you can make a few percentage points while silver is trading at levels around what it costs to extract it from the ground.


Tuesday, April 1, 2014

MGT Capital Acquires 100% of DraftDay.com - Furthering Daily Fantasy Website Portfolio

I've been writing about MGT Capital for several months now, monitoring the companies news & events. MGT is a mish-mash of gambling related intellectual property, patents, websites and other technology. Some of it I believe is mostly hogwash (real money gaming license in New Jersey) or worthless (Real Deal poker dealing technology), but the company has been making a major push into the daily fantasy sports space ... which is a highly competitive space.

This category of websites has been deemed legal in the majority of US states and has drawn the attention of venture capital money. DraftKings.com raised $24,000,000 last November, FanDuel.com raised $11,000,000 in January 2013, and MGT themselves bought a 65% stake in FanThrowdown.com for around $2.7 million cash/stock deal about 1 year ago.

What a difference a year makes.

MGT recently announced that they had purchased 100% of DraftDay.com for 'only' around $800,000 dollars cash/stock - which is a small amount compared to what they paid for a smaller percentage of FanThrowdown - which still is not as active as DraftDay. It's also a small fraction of the valuation placed on 3 other sites during fundraising rounds.

I actually play daily fantasy sports on all the sites I mention above, so here's where I'd rate the competition - and it shows how important this deal was/is for MGT Capital.

Top Sites
DraftKings - FanDuel - DraftStreet

Mid-Tier
DraftDay

Lower Tier
FanThrowdown
StatClash
... everyone else

Why would DraftDay sell for only a small fraction of FanThrowdown & what other sites are worth?

  1. MGT probably overpaid for 65% of FanThrowdown a year ago
  2. DraftDay must have been bleeding money
With competitors raising $20+ million dollars, it's very difficult for the mid-lower tier daily fantasy websites to compete. Sites like DraftKings offer fairly slick iPhone smartphone app and massive $1,000,000 guarantee prize pool contests where winners can win life changing money in one day. This allows them to attract & retain new players.

It's possible DraftDay was dangerously short on cash - which would cause them to draw from the 'players pool' of money in order to maintain operations. A similar thing occurred to (during it's day) one of the worlds largest un-regulated poker sites - Full Tilt Poker. The company had to use player money for marketing and daily operational costs in order to cover a shortfall in player deposits which weren't processed, but credited to players. The situation at DraftDay is likely not as complicated, but surely they were close to broke, as $800,000 cash/stock for the website seems like a small amount compared to the valuations that were achieved by 4 other websites in the past year. 

That could pose some challenges for MGT as they now have to manage the DraftDay asset while maintaining a controlling interest in FanThrowdown. Additionally the DraftDay asset will likely need some further investment in order for it to be a positive cash-flow generating asset for MGT Capital. Shareholders of MGT are seeing the company make an effort to expand & improve the daily fantasy area of the companies portfolio - even if they haven't proven they can be successful yet with prior purchases. The company seems too risky to me, and the disclosure of financials for the company is not particularly detailed - but is certainly staying on the speculative stock watchlist while they make moves in their industry.