I spent some time today dissecting the Commerce Planet Q1 financial filing, and it seems like the company is full speed ahead. There are a couple of minor negatives, but on the whole it seems like this stock should be trading in the $4 range, yet it can even get through $2.
Here’s a few highlights I pulled out. First, on the Balance Sheet- which is the part that compares the company’s assets to their liabilities:
- End of ’06: $3.6 million in cash; March of ’07: $5.4 million in cash (50% increase in three months)
- End of ’06: $1.5 million in receivable; March of ’07: $2 million in receivables (33% increase)
- End of ’06: $1.9 million in “other receivables”; End of March of ’07: $3.5 million in “other receivables” (these are some sort of credit card hold back). 84% increase
- End of ’06: $7.2 million in Shareholders Equity; End of March of ’07: $10.7 million in Shareholders Equity (48.6% increase in three months).
All in all, on the balance sheet side, it really doesn’t get much better than this. This is truly outstanding performance all across the board, and I really can’t find anything about this performance that doesn’t suggest a much higher value for the company.
Now- let’s look at the Income Statement. This is the part where we see if they are making any money:
- CPNE delivered $13.2 million in revenues, up 50% from Q4 in ’06. A huge gain.
- Gross profits were $10.6 million- CPNE is delivering 80% gross margins
- Net Income was $4.1 million pre tax, up 33% from last quarter
- Net Profits were $3.6 million
So- now we come to an issue that could be interpreted as a negative. CPNE has run out of loss carry forwards, so they are now paying income taxes. $500k was set aside for taxes in Q1, taking the EPS down from $.10 to $.08.
On the stock buy back program- we can see the hard numbers on their level of commitment now. Nearly 300,000 shares were bought back in Q1- those shares are now retired and removed from the I&O.
On the flip side, the company issued 2.37 million shares to someone the filing describes as an “affiliate”- there is no other description to let us know what this award was all about. In another section it is noted the company issues 237,000 shares for services.
Net result: a 2.6 million share gain in the number of shares I&O. This is a minor negative, and I would like some disclosure on why and to whom they issued 2.37 million shares of stock.
The tax paying status explains why revenues were up 50%, but profits only up 33%. The company will now have to pay taxes on an ongoing basis- kind of a high class problem.
So, in review- here are your negatives- shares I&O, despite the buy back program, went up by 2.6 million.
Revenues went up 50%, while profits only went up 33%- primarily due to paying taxes as the company is out of loss carry forwards.
And, of course the biggest question remains- why does this stock continue to trade at such a lousy valuation relative to corporate performance? I wish I knew. We have already explored that issue in some depth, so I won’t go over it again.
Here’s the chart:
I threw in a couple of other indicators I know investors like- specifically the 50 day and 200 day moving averages.
In addition, I put in the long term 61.8% retracement line I used a couple of months back to suggest the stock was a buy at $1.60.
As you can see, $1.61 remains the long term 61.8% retracement level. The 200 day Moving Average is $1.66, and the 50 day is $1.97. This means the stock is in a long term uptrend, but a short term down trend.
If the stock were to eclipse the $1.97 level- which it tried to do today, it would signal it was in an uptrend both short and long term.
So- there’s the chart, and there’s the review of the financial filings. Fundamentally, it’s a very strong buy for long term investors. Technically, it’s neutral right now. If it gets some steam, the technical picture could change.
Comments and questions are welcome.
Here is the additional info on the 2.37 million shares from 10Q.
Additionally, 2,370,767 common shares were issued to the President of the Company to meet the requirements of his employment contract. The common shares issued to the President of the Company divest over twenty four months beginning on January 1, 2007, according to the terms of his contract, and must be returned or purchased should he terminate his employment during the divesting period. The strike prices on these issues range from $0.0 to $1.78 and each issue was accounted for in accordance with the provisions of APB No. 25.
Editor: Thanks for digging that out. So, if the shares were issued during the quarter, there must have been a corresponding hit to expenses embedded somewhere in the expenses, which would have been non cash. This might also explain the 50% increase in sales, with only a 33% increase in profits. They should be buying a lot more stock back.
When can we get some rotten revenue and income news out of this paradoxical company so I can sell my stock. All they ever provide is massive revenue increases and it is now obvious that will never do any good. Why can’t someone report an accounting irregularity or two? That would surely send the price into the stratosphere! What does it take with this one?
Editor: My sympathies exactly. It’s almost as if someone seems to know there is something wrong here, but there is no evidence to support there is anything wrong. One thing for certain- if this stock is ever going anywhere, something needs to change. I don’t know if the company needs to get its message to the institutional community, or someone needs to come along and buy this company, or the company needs to stumble as you suggest so we have a good reason to get out. Whatever the case, this is now officially the most frustrating stock I have ever been involved with. The inevitable end- we’ll all throw in the towel, and then someone will come along and buy the company for $5.
Was CPNE formally known as NWWV? If so, what do you know about there involvement with “WagerPhone”?
Editor: I don’t know anything about a company call wagerphone. CPNE used to be NWAV- was it NWWV also? I’m not sure. I know it was NWAV.
So if the strike price for the prez has been set at a max of $1.78, does that not pretty much guarantee that the stock price will remain below $2.00 for the next 2 years.
Editor: I don’t know how you come to that conclusion. A fund manager just bought $9 worth at $1.90, and I’m sure he didn’t do it to lose money. However, the way the stock is behaving suggests that could be just what’s going to happen. But, who knows. This stock should be $4 to $6 now. Technically, it looks awful, which leads to only one conclusion. The company has not done a good enough job getting its message out to bring in more new buyers than there are old sellers. It’s that simple.
What we have here is a failure to communicate.
When management issued a press release stating, “In addition, the Company announced today that, effective with the quarter ended March 2007, the Company will replace monthly and quarterly membership numbers that it had previously reported with more relevant quarterly financial guidance.” I was encouraged they were beginning to understand the importance of communicating their operational plan with shareholders. Instead, their first quarter press release included no guidance whatsoever. Moreover, management is unwilling to provide any avenue of communication with shareholders. No conference calls. They do not respond to shareholder e-mails or voice mails. That is what disappoints me the most.
Editor: I wonder if it has anything to do with them being in registration. We’ll see if there is any change when the registration goes effective. This is a technical problem- the management has completely failed to find enough to interest to exceed the appetite to sell. It’s simply atrocious.
You wrote: “I don’t know if the company needs to get its message to the institutional community, or someone needs to come along and buy this company”…..where is the white knight..Warren Buffett and co.?! I hear that he buys undervalued companies with improving ROIC. With ROE of 397.34% (as per Yahoo Finance key stats), I wonder if this in in the radar of Berkshire Hathway
Editor: Not likely- way to small- however, there are plenty of new private equity guys who will start looking down the food chain for smaller companies to acquire.
Brutal honesty-I love this site! I wonder if this swoon is nothing more than the normal course for a stock that has gained 1000% in less than a year. Sure is hard to hold…
Editor: At this point, I just feel the company has done an atrocious job finding new interest- they need to find new buyers to replace old shareholders, and have failed abysmally to this point. Someone might “discover” this stock and get involved, but right now it looks bleak.
They also disclosed some problems with fraudulent signups and some concerns as to whether the credit card companies might refuse to do business with them due to the high rate of chargebacks. I haven’t received a call back from management on this, but credit cards are instrumental to their business and without them their business model would be in trouble. Any insights?
Editor: I don’t quite understand the set aside funds in the asset column of their balance sheet, and it may be related. I personally have no insight into the issue, other than to guess it would have happened already if it were going to happen.
What have you done with your shares? Do you see this current sell off as a buying opportunity or a time to unload?
Editor: I have sold a few, but only because I need the money, not because I don’t believe it’s a buy. Based on results, it should be much higher. If you believe stocks eventually reflect corporate performance, you just have to hang on. However, I will no doubt be selling more in small quantities simply because I have been waiting for over two years, and need the capital for some other projects I am working on. Until this stock is fairly valued, I will always continue to hold a position of some size.
It could very well be the issue with the credit cards. Thay are using a negative option agreement, if after 14 days you do not call to cancel contract, then they will charge every month until the customer notifies them. We all know how people put things off and not reply when they should, perhaps this issue is causing problems with CPNE. Perhaps they should use finite contracts like the wireless telephone companies: 3, 6, 12,24mth contracts.
From CPNE:
We recognize r revenue in accordance with the provisions of the SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. Our revenues earned from membership setup fees and monthly charges are recorded when the credit card transaction is processed and the Company has received confirmation that the credit card processing has been successful. Current terms on membership agreements stipulate that the customer pays a nonrefundable fee ranging from $1.95 to $9.95 to setup an account. The customer then has a fourteen day period to review our offerings. If the customer does not cancel the service within the fourteen day window, a charge of $29.95 to $59.95 is billed to the customer’s credit card on a monthly basis. The membership terms are agreed to under a negative option and we will continue to bill the customer on a monthly basis until they cancel their account. Bulletin No. 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for the disclosure of revenue recognition policies. Our revenue recognition policy for sale of products is in compliance with Bulletin No. 104. Revenue from the sale of products is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed and collectibility is reasonably assured. Generally, we extend credit to our customers and do not require collateral. We perform ongoing credit evaluations of our customers and historic credit losses have been within management’s expectations.
Editor: Great observation. This would imply some of their top line numbers are questionable, but would have no effect on the bottom line. However, everything goes back to the issue of ongoing subscriber turn over. If they want to be fully valued, they have to be wiling to start giving more disclosure about turn over rates, new subscribers, etc.
Your preceeding comments siting things look bleak are a bit disconcerting. Are you suggesting we get out?
Editor: There are two critical components to any stock market investment- the fundamental side, and the technical side. The fundamental side measures corporate performance- another words, sales, earnings, balance sheet, etc. Fundamentally, this stock is undervalued nearly to the point of absurdity. The technical side is a look at how the stock is performing- the supply/demand side the charts tell us. On the technical side, this stock is a mess. Clearly, the company is doing a very poor job communicating its message to the institutional community, as there are not even close to enough buyers to absorb the supply. I don’t know when the technical side is going to change- or what will happen to make it change. A lot of us thought Q1 numbers might do it, but it failed. The stock went down on great numbers. Therefore, you have to decide for yourself if this is a stock you want to be in. If you own this stock, you have to have faith someone will come along and want to buy a whole bunch of it, overwhelm the sellers, and get the stock going to where it should be. It’s a question of your faith and patience. Don’t own this stock if you are not prepared to hold for the long term.
What it takes for a company to graduate out of BB and go to higher listing? Where does Planet stands?
Editor: You have to meet certain criteria and file an application- sales, earnings, profits, shareholders equity, market cap, etc. CPNE qualifies in all matters except price, and they do make exceptions for price. PNWIF is a lot closer because of the higher price and market cap.
Below is info on customers at end of Q4 2006. Does this look reasonable for CPNE?
As of December 31, 2006, we had approximately 120,000 current members for our core membership product, Onlinesupplier.com, and we have serviced about 600,000 paid members since our inception. Additionally, many of these customers participated in one or more add-on membership programs resulting in approximately another 25,000 memberships for these products current as of December 31, 2006. Customers for these products consist primarily of individuals desiring assistance with organizing their own internet-based business.
We also sell products and services to businesses that require lead generation and/or customer acquisition services, graphic design, printing, fulfillment or secure data hosting. We provided products and/or services to about 50 business clients in these areas.
No single customer comprised more than 10% of revenues during 2006.
Editor: This implies they are generating about $83 per customer, which seems high to me. Perhaps this is one reason the stock trades so poorly. However, Q1 numbers do not suggest there is any problem at all other than having to pay taxes- they need to provide more disclosure on what is going on there with memberships. The price reflects a worst case scenario.
Holy Cow, how much further could this go?!
Editor: Apparently, the low might have been yesterday just below $1.40. I guess we’ll see. This stock is just pathetic right now.