Monday, June 30, 2014

MBLX - Metabolix, Inc. Broken Promise Means Investors Should Sell Now

Summary:
  • CEO hasn't done anything but re-run a few investor conference presentations to yawning investors. 
  • MBLX stock has been trading under $1 and they risk being de-listed by NASDAQ.
  • A round of fundraising was promised by end of the month but hasn't happened. 
Effective January 2, 2014 Metabolix appointed a new CEO and investors held out hope he could turn this sinking ship around. 

CEO Joe Shaulson had a lot on his plate. Metabolix needed to raise cash levels on the balance sheet. They also need a commercially viable product, more than likely via a partnership with a larger company. 

Here's what Joe has done:
So Joe's had 5 cracks at trying to drum up some interest in this company and he's come up empty. Given he's been here 6 months, he's probably just happy he got to travel around the USA on the shareholders dime. Certainly that's the only bright spot investors can see come of these conferences. 

Adding to the companies woes is that May 19th was the last day the company's stock was trading over $1.00 per share. As penny-stock investors know, if a security trades for under $1 for 30 consecutive trading days - action will follow from the exchange they are trading on ... and in the case of Metabolix - that is the NASDAQ.

Finally, CEO Joe's "plan" was to have financing in place by today! If you don't believe me, here is what he said to investors on a conference call: (Bold added by me for emphasis)
So yes, I mean our plan – right now, our focus is balanced between financing and operations. I’m looking forward to the point in time where the balance shifts more to the operations than where it’s been for the past couple of months. But I would say that our plan to complete at least the first phase of financing by the end of June and we would expect to have a full set of information for investors about what that financing looks like when we announce it. And to complete it by the end of June, it means we’d have to announce it by the end of June.
- CEO Joe Shaulson (Q1 2014 Conference Call
Trust me, if Joe Shaulson had any positive news about Metabolix to announce - he'd come out with it. The bottom line is he didn't get the job done. Maybe it's because Metabolix is already a sinking ship that Joe couldn't save in 6 months ... or Joe just didn't get the job done. Either way, it's the end of June and there's no financing in place, and the stock currently trades for less than $1 dollar.

Investing in this company now would be like betting on a team who were down 3 scores with only 1 minuet left on the clock. While teams have come back to win in situations like that ... it takes a series of miracles in order to win the game. Metabolix is in that situation now. Any partner/competing company can just wait for Metabolix to go bankrupt. Banks, lenders or deep pocket investors have more attractive investments to gamble on. The only thing Metabolix can do is hope a 1st time CEO can pull off a miracle to save the company. Given that Joe Shaulson has not done anything except travel to some investor conferences (something an 8th grader can do) .... I don't expect any positive news from Metabolix. This company has a very good chance at not being around in 6 months. 

Sunday, June 29, 2014

First Time Home Buyers Common Mistakes

Purchasing your first home is an exciting as well as a daunting task. There are hundreds of artifacts demanding your attention just as you are about to take the plunge to purchase your first home in Australia, and simultaneously you are about to make the biggest transaction of your life. Being ill prepared at such an important juncture can spoil the quintessential balance of your life, disrupting future possibilities and gains. Considering the significance of this step, we here try to bring limelight over some common mistakes and pitfalls of the buying process.

  1. Know about mortgage: - Simply researching the bank’s website and learning what you can borrow isn’t usually enough. There is a huge difference between what websites indicate and what you can actually receive. Your foremost step should be purchasing and analyzing your credit report. The Credit report is an in-depth history of your financial status and stability and is one of the main factors which will determine your eligibility for a mortgage. Check your score well in advance so that you can work it up and increase your chances of receiving the maximum possible amount.

    Subsequently, your next steps should be obtaining a pre-approval. Having a pre-approval will help you plan your purchase in Australia effectively and altogether, it puts you in the best negotiating position along with the mental peace that comes with it.
  2. Utilize your 1st home buyer grants: - Australian government has initiated a program through which it aims at helping first home buyers making their first purchase smoothly and relish their Great Australian dream. Guidelines and grants may vary from state to state, however one can apply for several different types of housing schemes under the program.
  3. Need for Patience and Proper Researching: - Keeping patience is the key for making the best purchase. Out there, there is one home that belongs solely to you so wait for the right time and let the nature unlatch its store at its own pace. I highly advice you against making any fed up purchase. You need to understand that buying a home requires
  4. Persistent efforts and still there is no guarantee that you may succeed within a short period. To conclude, keep up your incessant efforts until you haven’t reached your goal.

    Eventually, don’t let the price tag rule your search. Consider your home as an asset, as they are similar to fixed deposits. So invest your money in Australia in right property, instead of cheap property. You will understand the value of your investment later when the prices increase and which won’t be the case with cheap purchase.
  5. Investigate thoroughly: - Before entering into any contract with any seller in Australia do as exhaustive investigations as possible. If you personally are not capable, hire an expert for help. Once you have signed the contract you purchase the entire defects along with the home, additionally these defects can upset your finances. Ensure that every appliance is in working condition, and if possible engage a pest inspector along your side.

Furthermore, don’t forget to read your contract at least once. Sign the documents only if you are satisfied with the house and clauses of the seller. Ensure that you are getting an adequate number of right protection clauses inserted in the contract of sale. There are several other issues to consider but, hopefully, these guidelines will help you avoid some of the common mistakes as you endeavor towards your first home in Australia.

Wednesday, June 11, 2014

WIX.com Stock Still A Sell After Latest Quarterly Report

I've been following WIX since they went public not too long ago. If you are not too familiar with their business model, I write about it more here, and I'll give you a quick run-down now:

Basically anyone can setup a website using WIX.com's "intuitive drag & drop" software. For free. If you don't mind your website domain being yourdomainname.wix.com (and Wix ads running on your site), you can use Wix for free. The free service level is similar to what Google offers with Blogger and Yahoo offers with Tumblr.

If you want more advanced features for your website, like a regular .com name, no Wix branding/ads, a shopping cart for eCommerce, or the ability to host large files or photos - you are forced to pay Wix, in a similar fashion other hosting companies like GoDaddy, Hostgator, Rackspace and Amazon charge for server space. Essentially you pay for the space per month - so it's not a commitment that the average person needs.

Wix's primary way to make money, is by charging customers for website hosting and other website services. In essence, they offer a drag & drop website builder (that is proprietary) but only charge for it if you want features that other competitors offer as well. They have a goal of making the app store (more on that below) a meaningful contributor to earnings, but so far it's not.

Here are some key statistics from the latest quarter: (Source Of Data Q1`2014 PR)
- Bold Emphasis Added To Make Me Look Good

  • Registered Users: 46.2 Million - As of March 31, 2014
    45% YoY Increase + 4 Million added in quarter
  • Premium Subscription (Paying) Subscribers: 908,000
    65% YoY Increase + 118,000 added in quarter (record)
  • Q1 GAAP Net Loss: $14.9 Million

Three Months Ended
March 31,
20132014
(unaudited)
Revenue$15,522$28,847
Cost of revenue3,0155,240
Gross Profit12,50723,607
Operating expenses:
Research and development5,53411,966
Selling and marketing10,52622,178
General and administrative1,3413,960
Total operating expenses17,40138,104
Operating loss(4,894)(14,497)
Financial income, net26184
Other expenses --(3)
Loss before taxes on income(4,633)(14,416)
Taxes on income283501
Net loss(4,916)(14,917)
Basic and diluted net loss per share  $ (0.83) $ (0.40)
Basic and diluted weighted-average shares used to compute net loss per share  6,945,274 37,508,624

The company doubled R&D Expenses, Selling & Marketing Expenses and tripled General & Adminstrative expenses in the quarter but managed to increase revenue by roughly 46% too. That's the good news. Problem is, the loss for the quarter was roughly 1/2 of the revenue. (Loss was $14.9m and revenue was 28.8m). 

Year to date, WIX stock has fell off a cliff. The company was trying to let insiders sell even more shares into the public markets, but had to sheepishly take that plan off the table, after the stock price started to slide. 



I said I would talk more about the "app market" - where Wix allows 3rd parties (like Google) allow functionality to Wix users through "apps" similar to what Wordpress users know as plugins. WIX company brass has stated that they'd like the app market revenue to reach 10% of total revenues - but when pressed on it, they don't seem to have a plan in place to make that happen. Take a look at this recent exchange on the Q1 conference call:
Source: Seeking Alpha
Bold Added By Me

Mark Mahaney - RBC Capital Markets
And the last question on the app market and the path to that reaching 10% of revenue at some point. Can you help us think through when we could see that? It sounds like that’s becoming big enough to maybe already impact some level of the ARPU and I understand that there are other packages, broader packages that were purchased and if we think about the Wix app market is the standalone business, how far we away from are we from that being 10% of total revenue?
Avishai Abrahami - Co-Founder, CEO and Chairman
I just want to add to what Lior stated, currently our priority is to actually provide as many applications that we can for free and while we assume that what we actually see and prudent from the data is that when we provide the those applications we actually get more subscribers going to premium and subscriptions and so we actually utilize the app market to encourage and enhance our convergent and converting this to premier subscriber. So that’s currently the current strategy we are thinking so it's kind of hard to differentiate between what the percentage will came from in the app because we know there to create total conversion and -- but I think (inaudible) already a large contribution to the overall performance of the Wix for the app market.
So the App Market isn't going to generate revenues for this company with that strategy. and here's why the Wix "freemium" model doesn't work:

Most investors are familiar with the 'freemium' model by now. Zynga and other game makers use the model because games are addicting & in order to feed your addiction ... you need to pay to play at some point. Unless you live in the heart of Silicon Valley, you probably know many more friends who play games online or on their phone - and probably only a few friends with a blog or website they update regularly. The percentages drop even further when you talk about friends who pay for a website each month/year.

Building a website is not for everyone. While working on a website can become addictive, using WIX's free website option will likely suit the majority of users. Facebook (or LinkedIN) tends to be what the blog was in the early 2000's - so many potential WIX customers could just use those free options. The average person only needs a website when they get married, or have a passion they feel like posting more about. Paying even a nominal fee of $4.99/month isn't something the average person wants to commit to, not to mention domain name & renewal fees. Small businesses need websites - but most will shop around before committing to WIX long term, other are doing well enough to pay someone to do most of the work for them - or they have an existing employee handle it.

The WIX business model is going to face the same challenges the freemium video game makers have faced. If you're a video game maker and a game gets popular, you might be forced to add levels, or upgrades in order to keep the users engaged. More timeless games like Tetris, or one of my personal favorites 2048 - are essentially a code base that isn't developed on much .... but typically game makers are forced to come up with something new. WIX is going to have to scale it's customer service (and IT) department as the number of paying users increase. Given that WIX marketing strategy & software is targeted to the 'do-it-yourself' newbie ... the company is likely going to attract lots of customers who have questions about how things work. By the looks of things, WIX isn't handling customer service very well, and that will only hurt the brand as it attempts to scale the business into profitability. While the businesses are different, the freemium model always relies on the next 'big hit' and in WIX's case, converting members to paying customers which as we already discussed - is not something a large number of people need or want to pay for.

There are other ways for WIX to make money.

They do have a rather large user base. Who knows how many are duplicate accounts, or spammy/porn type webmasters who are just using WIX because it's free backlinks - either way, WIX can make money with the type of users they have access to.


  • They could offer to setup the site like competitor WEB.com does. Or offer a 'premium' tier of support that is actually decent.
  • They could display 3rd party ads on the websites that don't pay a monthly fee. This could actually work in converting existing members into paying users too. Think about it - if I have a free website and the only ads that appear are WIX.com ads ... what do I care? However, if my competitors, or ads I don't like start showing up, it might convert me into a paying customer for that reason alone.
  • They could e-mail blast customers with offers considering a good percentage are probably entrepreneurs of some sort. 
  • Personally, I think WIX gives you too much free use of their proprietary software - I would make the free service level very basic, and force more users to pay. 
  • Lastly, WIX could license it's software to other providers like GoDaddy or Hostgator in order to expand the WIX brand beyond it's own capabilities.


For now, it appears management is content with a strategy that is essentially this:
  • Run TV and media ads to attract customers (free or pay)
  • Invest in IT and give the software away for free
  • Hope people want to pay for something other than the WIX software (like a domain or shopping cart)
  • Otherwise you use WIX for free
It's not a very creative business model, and by the look of the balance sheet - it's not generating any profits for investors. Personally I would steer clear of this company until the dust settles even further on what the strategy will be going forward.. Additionally, further insider selling will happen as other realize this company is miles away from being profitable. 



Disclosure - I hold no position in WIX and have never traded the stock. I wanted to short it in March when it was trading in the $30's but since the stock was so new, the options were not liquid enough. I may short this company in the future, but have no plans to do so in the next 72 hours.


Tuesday, June 10, 2014

ATE Insurance (After the Event Insurance) - An Explanation

ATEInsurance can be a valuable tool to businesses seeking to engage in commercial litigation. This unique and niche insurance helps to minimize the financial risk to the company or individual as the costs of the litigation are covered (either entirely or in part) by an insurer if the case is unsuccessful at court.

Put simply, if the claimant loses their commercial litigation case in court, the ATE insurer pays their legal fees and disbursements (in accordance with their premium and the agreed level of cover). Some ATE insurance policies can be deferred and contingent upon success, i.e. no upfront cost and the premium only becomes payable if the case is successful.

Of course, ATE insurers can be picky when it comes to providing commercial litigation cover and usually only consider cases which they consider to have a minimum chance of success of at least 60%. TheJudge, the leading broker of ATE insurance in England & Wales, has created a video guide to ATE insurance which explains how a policy can be used to protect against adverse outcomes by covering part or all of your legal costs.

The animation also gives a brief introduction to third party litigation funding which can be helpful for claimants who may not have / do not wish to use their own financial resources to finance their legal fees and disbursements. Litigation funding ensures a reliable cash flow for the duration of the case and minimizes financial risk for the claimant as the funder takes on some of the risk in exchange for a ‘success fee’.

Both After the Event insurance and 3rd party funding are forms of litigation finance and can be taken out together or as a combined solution. Litigation finance should most certainly be considered by any business looking into commercial litigation and is becoming more widely available - especially in smaller commercial disputes where expected legal fees are likely to be in excess of £50,000.
Find out more at www.thejudge.co.uk