CPNE finally had the decency to give investors a look at how Q2 numbers are going to come in, and a look at just how much damage the fraudulent credit cards actually hurt the company’s numbers.
CPNE has been in a free fall since making its new all time high at the end of February, and the value of the stock has been pretty much decimated. Investors have known for some time about the challenges they have had with chargebacks in Q1, but the company has refused to quantify the damage until this morning.
Personally, I feel the company’s “head in the sand” mentality is atrocious- For months now the market has been pricing in a “worst case” scenario. Finally, when the stock has been beaten down to a small fraction of its value just a few months ago, the management lets the public know the extend of the damage. In short- simply horrendous communication.
Public companies routinely issue earnings “guidance” well in advance of final earnings releases. Here’s the way I see it- CPNE should have issued guidance a long time ago and let investors decide for themselves if they wanted to hang in there. In the absence of information, you had to take your cues on the financial health of the company from the way the stock was behaving. If you looked at the chart, you had to assume the company was near bankruptcy.
Today, just prior to the open, CPNE issued a press release stating they would deliver about $11 million in revs and $2 million in operating income. Take out $500k for taxes, and whatever non cash charges are out there, and you have probably about $1 to $1.5 million in profits- or EPS in the $.02 to $.03 range.
The top line compares favorably with Q2 of 2006- They did about $7 million in the same quarter one year ago. However, the bottom line is taking a hit- last year they made $1.4 million on the $7 million in sales- margins have dropped from 22% to about 13% depending on where the final figures come in.
So, now we have a reasonable estimate on the hard numbers- and you can decide for yourself if you want to continue being a shareholder or become one. Personally, while I was impressed with what these guys have achieved in the past, I am extremely disappointed in their shareholder communications.
Something changed with this management team as we rolled into 2007. In the latter half of 2006 the company provided a constant stream of updates concerning their financial health and subscriber base. There were monthly subscriber number updates, and the stock traded very well. In 2007 they have chosen to remain mute about everything but new expansion programs. Some investors take these new initiatives as a sign they have already passed the steepest part of their growth curve.
Let’s look at the stock:
At today’s price of $.90, the stock market is saying the company is worth $45 million. Based on Q2 numbers, they should be delivering about $50 million in annual revenues, and earnings of around $5 million, or $.10 per share.
If margins do in fact come back in Q3, you would be looking at more like $.30 to $.40 EPS. Then, we would go back to the absurdly undervalued argument.
Clearly, CPNE has experienced a bump in the road. Whether or not it derails the company completely has yet to be determined.
I have no issue with the corporate performance- all companies suffer set backs. Some recover and go on to prosper- some don’t.
However, I do have an issue with the way they have handled their shareholder communications through the downturn. If you know what’s going on, you can make an informed decision about how to handle it. If you don’t you can lose money unnecessarily.
Here’s the bottom line- I will be looking to get out of this one if and when the stock improves. I can’t say the worst is behind, but the stock has lost 75% of its value since the end of February. It doesn’t seem like the company is worth 75% less, but that’s the way the market is valuing it for now.
The market has priced in a worst case scenario, and it’s not all that bad. However, I like being a shareholder of a company that lets you know what’s going on. I know I could end up selling at the bottom, but how would I ever know what’s going on so I could make an informed decision? I’ll be looking to get out on surges.
Comments and questions are welcome.
The numbers speak for themselves with your analysis and turned out much better than expected given the drop in the PPS.
My question: Have you tried to contact anybody at IR about your concerns on a lack of communication?
I have to believe that Mr. Hill would offer you time given the number of shares and the fact you publish reports on this company.
I would like to know if there is going to be a conference call to discuss these numbers and if not why not?
I think communication is half the battle here and perhaps it is a quick fix given that CEO Hill knows about our concerns on this issue.
Keep me posted on your findings as I too will try to get an answer.
Holding at this time.
Scott
Scott
Editor: Yes- I have discussed this issue directly. However, I suggested they put out a press release a month ago concerning the downturn. Address the issue up front and forthright. The response was no- there was no belief it would matter. I strongly disagree, but I don’t run the company.
editor,
since historically this is the down time of the year for micros, how long do you see it taking for this to make any substantial move upward? do you think investors are going to be waiting for Q3 at this point to decide whether they will pay fair market value for this stock, which should be at least $3…
DF
Editor: Here’s the issue- is this a one time event? or is this the beginning of a trend in the wrong direction? I don’t know, and I don’t know because the company has not communicated with shareholders. Is the company worth $3? Yes. Is it going there? In my opinion only if they have a change in communication policy or someone buys the company. Unless one of those two things changes, I am looking for the door.
There was a give away to the current plight late 2006 when payment Data System (OTC.BB: PYDS) pointed out problems with one of there customers, Online Supplier. The clearing bank had refused the account do to charge-backs. Read the first paragraph of the 8-K at the following link: http://www.sec.gov/Archives/edgar/data/1088034/000123174206000788/pyds8k117.txt
Some may have been fraudulaent but I know there were plenty of enrollments where people felt they were duped (similar to how VistaPrint (NSDQ: VPRT) used to derive some of it incremental income.
soes
Editor: That stuff is normal in their course of business. They have been dealing with that for sometime. Here’s what was different this time- it was low limit debit cards being used through a nationwide fraud scheme that were partially responsible for the downturn. However, I can’t say if this is the beginning of a negative trend or a one time event.
Agree with you mostly. After my last comment about the “dead-cat-bounce” you advised me to sell but I decided to await the Q2 numbers and even added some stocks on Friday, also I felt like “throwing more good money at bad money”. Now numbers are out and, thanks god, not so bad, but what we see confirms the bottom line of my last remark: always when this stock goes up a bit people use it to sell further. Thats what worries me most because it is an unhealthy behavior.
Today we opened at 0.83, went up to .96 and closed again down at .89 with heavy selling starting in the second trading hour. If that stock would have been so oversold and Q2-numbers would have been really a positive surprise (they should have been, if, as you said “the market priced in the worst case”), the shortsellers should have gotten cut their balls off and that stock should have gone through the roof during the whole session, especially in a positive market environment where all broad indices were rallying like crazy today.
Bottom line is: it did not happen. That stock is unfortunately not enough oversold. You are completely right about the lousy information policy. I think this is not just managerial incompetence. It is for some good reason.
Normally, stock and stock options make up for the majority of the compensation package of the management in small-cap companies, so these guys should have a strong personal interest in seing their stock price rising. Surprisingly, it doesn’t seem to be te case with CPNE.
Technically speaking we should see now a strong rally with high volume up to 1.30-1.40 in order to create a valid medium- to long-term buy signal. If we see again strong selling in the 1.20-range it’s just business as usual, similar to what happened in June.
Btw, today we had about 1.1 mln shares traded, compared to average of 350,000. I wonder who is still selling all that stock. The management? Sell on good news?!?
Last observation: I just checked out their lates product “www.myflick.com”. The site is very slow, you have to register in order to see a video… got very tired. No way they will ever compete with youtube and the like.
Lets hope the stock recovers a bit and lets the the heck out …
Editor: The bids are strong today, which suggests short covering. As far as selling- I’m sure there are a lot of folks looking for the door on this one. Hope you are right on the rebound. I believe the more likely “good fortune” exit strategy would be a buy out. However, with the current policies, this stock will never be “fully valued” in my view. It was a great ride for six months, but the train might have come to a stop.
I agree maybe if thick headed dumb guy Mr. Hill would care to update shareholders on a regulard basis .. unbelievable
Editor: At least you could make investments decisions based on the facts that way. A very short and succinct way of saying what I said in about 300 words.
Just a curiosity, what is your selling price on this stock?
I think the communication is always important, but more are the numbers, and for what i’ve seen, this has not been a bad q, and if it’s true they have fixed the chargebacks rate the next should be better…
Today i bought at 0.89, worst would been a good communication and some worrying numbers, what you think….?a
Editor: I don’t know what I will sell at. I sold 10k at $.90 today because I need the cash. Depends on how it trades and what happens in the next week or two.
I am new to buying stocks and I read your journal, For months you been saying this stock is going to turn around now its time to get out at the botton talk about mis communication I think its time ti get out of the journal
Editor: You could be right about that. However, I have not been saying to buy the stock. I definately said once it dropped below $1.47 there was no telling where the bottom might be. I also suggested a buy around $1.15 with about a $1 ssl. However, you could be right. Use the unsubscribe link, and you are out. This one has certainly been painful- mostly because it just doesn’t make any sense. I’d rather lose money because the company failed.
the way iseeit, it is time to get out. Thanks for the sell recommendation, it does help.
Editor: This company has demonstrated it cannot manage communications as a public company. The numbers suggest a much higher stock, but if it never goes there what can it possibly mean?
Your concerns over the margin decline to 13% are probably overstated based upon a quote in the press release: “As a consequence of the lower-quality sign-ups in the first quarter of the year, we did experience a higher than normal return rate and chargeback rate during the second quarter which negatively impacted costs.” To me, this indicates that the true revenue run rate and margins in Q1 were overstated, and the margins in Q2 are understated (it appears from the comments that the revenue run rate is sustainable and of higher quality).
By the nature of the business, the margins for web applications can be very attractive, provided you have high quality “real” revenue being generated. High chargebacks are the demon in their business model, and it appears to me that they are taking measures to keep the demon at bay. Q2 margins reflect the hangover from high chargebacks that probably should have been accrued for in Q1 numbers, but probably were not fully known when the Q1 numbers came out.
It would be especially helpful if management reported the impact of chargebacks on the Q2 numbers, to give everyone some clarity about the true, sustainable run rate of revenues and margins. But, as you point out, management has not been particularly forthright with information.
Editor: And, there’s the big problem. We don’t know if this is a one time event, or if this is the beginning of a trend that will hurt both top and bottom line. But- here’ the real problem- the company doesn’t give us the information so we can make intelligent decisions. Therefore, I have now come around to believe that this stock will never be fully valued under the current management team. Something needs to change.
It wasn’t fraudulent credit cards. Their charge back rate and customer complaint rate was very high and the banks they were using ALL shut them down. If you can’t use the banks you then you can’t generate revenue. There is more here than their claim of fraudulent credit cards. You don’t lose all your banking for just those reasons. Attention should also be paid to their marketing practices and claims along with what they are selling.
Editor: Hence, my view that the company will never be fully valued by the market. Seems to be getting absurdly cheap to me, and $10 million is a lot of revs for a company that is supposedly “shut down”. The stickiness of their business has always been a bit problematic with this one, but this stock is starting to get absolutely silly. I’m not advocating buying, but it’s because I think the company is doing a pathetic job disclosing their position to investors.
Several of you are trying to catch a falling knife and have got really bloody hands as a result. Down .19 today (Wednesday). I’d say there is a strong liklihood that the stock will get into the very low double digits (cents) until it becomes more transparent AND reports to shareholders on a more regular basis. It may also be true that their model is so flawed that they can’t preclude the rip off artists. I simply don’t know. As Barnard Baruch said “I never bought at the bottom and I never sold at the top, I just took a big hunk out of the middle and made lots of money.” So, trying to find the bottom of CPNE is going to be costly, in all probability. I’d rather wait for proof of concept first along with other requirements and give up some upside $$ before leaping back in. jmho.
Paul
Editor: I would like to see this stock higher for two weeks in a row before believing it has hit bottom. I just can’t believe what a terrible job they do communicating.
You were right I should have goy out at the bottom becasce the bottom is 19 points lower now. there nothing to do now but to ride it out
Editor: Believe me- I have way too much of this stock. I would be tempted to buy more if the company would give us some reasonable disclosure.
Commerce Planet hired the guy, and still do business with the guy, that they blame the fraudulent credit cards for. This is a simple case of the company marketing a flawed product, having high charge backs, high returns, high levels of customer complaints and a business model which is very similar to Kevin Trudeau and just as flawed.
Editor: That’s is definitely the way the market sees it right now. They are selling the “dream”, and few folks do little more than pay them for one to three months, then move one. This is why you see a stream of announcements concerning new internet marketing product developments that “diversify” the company. Nevertheless, investors are demonstrating they have a very short fuse for this company having any sort of hiccup. The numbers are not compelling enough to overcome the long term picture.
No reason to complain about spilled milk, but here I go anyways……A few months ago I came here to the board saying that between CPNE and TTGL I will go with TTGL, a company with a clear business model and rising revenue rates and lots to talk about. Your comment was that the CPNE balance sheet was much better and TTGL was much more shaky…….I think CPNE was still above your SSL. I greatly enjoy the OTC journal but I decided that to me TTGL looked better so I went with them….Now TTGL is above the magic $1.40 and I see CPNE is hoving around $.80…….I think now is the time for adding CPNE……love that $10 mill of revenue, summer ending and CPNE Investor Relations must emerge from their slumber any day now….So no complaint but thanks for finding both companies….
Editor: You made the right move, realizing TTGL’s business model was a better value proposition for consumers over the long term. Nice to see TTGL trying to make new highs, and on a buying binge.
today’s press release looked like the news of old. maybe they are starting to get the message that people want to be informed! i have a feeling things are about to change.
DF
Editor: Hopefully, you are right. This will be the signal- the company should do two things- 1. Hold their first quarterly earnings conference call after they publish Q2 numbers and open it up to questions for investors, and 2. After Q2 numbers come out, they should publish “guidance” for Q3 like so many other public companies do. If the numbers are back on track, that might help a lot.
I think the management team received enough complaints that the lack of communication is killing this stock not to mention a drop in numbers. Management looks to have taken this information and has released two PR in the past few days.
Now I asked that they gives us some outlook for the balance of 2007 and 2008 if that is not asking for too much!
Adding to my position.
Scott
Editor: Exactly my thoughts- here’s what they need to do immediately- hold a conference call when they announce Q2 numbers with an open Q&A session, and then announce “guidance” for Q3. If the numbers are back on track, the stock will start doing better.
Their statements will not change that the FTC has taken an interest in them, the product and the advertising and sales methods. Press releases only make a difference if and when you have something tangible and meaningful and are empty if the product is flawed to begin with.
Editor: I don’t know what kind of damage can be done by the FTC- is there some mention of an FTC investigation that I don’t know about? However, as we have covered ad naseum- when the stock was $3 numbers trumped the business model. With the stock below $1, business model and value seems to be trumping numbers. Perhaps it will swing back the other way before too long.
Is there any indication they are using the buyback? It seems now would be a good time to take shares off the market. However, with CPNE’s presence on Reg Sho I suspect some hedge fund doubts the business model and is shorting millions of shares.
Editor: That is possibly true. As far as the buyback, we will have to wait for the 10Q to find out how much they have bought back. My guess- they have abandoned the buy back, but who knows for sure. As far as shorting, that is possible as well, especially in light of the revelation about the off quarter and the charge backs. However, I have little faith in the Reg Sho list. It has done very little to abate the illegal naked shorting as the issue is in the holes in the DTC system, which the regulators seem reluctant to deal with.
The 10Q is out. $10 million in working capital and $6 million in ytd operating income for a $40 million market cap. Lead generation revenue is still well behind membership revenue but growing nicely. What is your view of the salary and stock compensation package given that shareholders new to the stock in 2007 aren’t pleased with the stock’s performance? Then again, management can’t control the stock price. The share buyback of 634k ytd (none in June) has been inadequate at preventing dilution or supporting the stock. It would seem the buyback authorization should be increased and utilized at these levels.
Editor: I did a quick review of the numbers last night, but want to have another look this AM before writing down some thoughts. The reserve set aside number seemed huge to me. Want to look at that relative to other quarters in the past.
There is an active FTC review, ongoing, of their sales practices, advertising and products.
Editor: Is there some disclosure of that somewhere? I can’t find it.