Sorry, i was not clear. The million dollars on the balance sheet showed they had the $$ to buy the 100,000 shares. After they buy-back shares will this increase the number of days to cover a short?
Well, now they have $4 M, which still isn't much for a $220 M market cap company. The company buying back shares doesn't increase the number of days to cover the shorts.
The number of days to cover shorts is the # of shares sold short divided by the average volume traded. For example, if there are 10 million shares sold short and the average daily volume (say, of the past 60 trading days) is 1 million, the number of days to cover the shorts is 10.
Coming back to BIDZ ... we already have Citron's version of the facts, but on the other hand there are several analysts recommending buying BIDZ, also with compelling arguments. Probably this is why the stock didn't just kept going down to almost zero and then fall to the OTCBB or PK, which often happens when Citron really attacks a company.
Let me just copy/past another analyst's view on BIDZ:
Key Points• 4Q07 results Beat expectations by a wide margin: Revenue and pre-tax income of $63.2MM and $8.2MM topped Street estimates of $58.7MM and $6.1MM, respectively.
• 2008 guidance was In-Line with consensus: Street estimates for 2008 revenue and pre-tax income were $231.8MM and $24.9MM; management reaffirmed its existing revenue midpoint of $227.5MM but raised its pre-tax income midpoint to $25.5MM. At the margin, we'll call it In-Line guidance.
• Operating margins hit an all-time high: BIDZ's operating margin rose a whopping 1,040 bps Y/Y to 13.2% in 4Q07 -- this is an all time high. Incremental margins came in at 28.6%, down a few ticks from the 32.2% last quarter but still very high.
• Key operating metrics improved significantly: BIDZ added 110k new buyers during 4Q07 -- far and away the most ever and an 89% increase over the number of adds in 4Q06. The average number of items sold per day rose to 12,709, up 31% Y/Y, a material acceleration from the 21% growth seen in 3Q07.
• Fundamentals are eclipsing innuendo: BIDZ shares have been fighting a riptide of malicious innuendo since early November, and the 4Q07 results go a long way toward repudiating the Bear "thesis". Between management's new $20MM buyback authorization and a materially improved institutional investor base, a short squeeze seems quite possible in the near term.
We are buyers of the stock at the open: Given the generally weak 2008 outlook given by many retailers of discretionary consumer goods, we believe that investors are hungry for the shares of companies that are taking share -- and doing it profitably. Reiterate BUY and $19 price target.
THE BULLS WILL POINT TO...• 4Q07 results Beat expectations by a wide margin. Revenue and pre-tax income of $63.2MM and $8.2MM topped Street estimates of $58.7MM and $6.1MM, respectively.
• 2008 guidance was In-Line with consensus. Street estimates for 2008 revenue and pre-tax income were $231.8MM and $24.9MM; management reaffirmed its existing revenue midpoint of $227.5MM but raised its pre-tax income midpoint to $25.5MM. At the margin, we'll call it In-Line guidance. And in this economic environment, In-Line guidance is a clear positive.
• Operating margins hit an all-time high. BIDZ's operating margin rose a whopping 1,040 bps Y/Y to 13.2% in 4Q07 -- this is an all time high. Incremental margins came in at 28.6%, down a few ticks from the 32.2% last quarter but still very high.
• Key operating metrics improved significantly. BIDZ added 110k new buyers during 4Q07 -- far and away the most ever and an 89% increase over the number of adds in 4Q06. The average number of items sold per day rose to 12,709, up 31% Y/Y, a material acceleration from the 21% growth seen in 3Q07.
• BIDZ announced an increase in its share repurchase program. Last week, BIDZ announced that (1) Bank of America had increased BIDZ's credit facility to $25MM from $15MM and (2) it had increased its share buyback authorization to $20MM from $5MM. This increase allows management to repurchase approximately 10% of outstanding shares (based on Monday's
closing price). The company can begin repurchasing shares on Tuesday, and we expect management to be fairly aggressive at current levels.
• Institutional ownership is on the rise. One of the key reasons why the shorts were able to so easily manipulate BIDZ back in November was the relatively low level of institutional ownership. At the end of September 2007, 33% of the float was owned by institutions -- as of December 31, 2007, that level had risen to 42%, and we believe it has risen even further since then. Institutional investors are far less likely to be spooked by the kind of "hit and run" tactics
employed by the BIDZ shorts.
THE BEARS WILL POINT TO...• Acquisition costs for new buyers ticked up. BIDZ' cost of acquiring a new buyer rose to $51 in 4Q07, up 13% Y/Y (a deceleration from 19% last quarter). We are only mildly concerned by this increase given the fact that BIDZ also posted an all-time high in its operating margin.
• BIDZ enjoys several counter-cyclical hedges but is not "recession proof". We thought that management did a nice job on the call of making it clear that while yes, their business certainly has several powerful counter-cyclical hedges (e.g. a rise in bargain hunting on the part of consumers, or BIDZ ability to get even better deals from suppliers looking to unload excess inventory), it is not recession-proof. BIDZ still very much falls into the "consumer discretionary"
bucket, and if the consumer's balance sheet deteriorates materially between now and year end BIDZ will be impacted. In light of this, we are pleased to see that management has decided to remain very conservative with its guidance.
VALUATIONOur $19 price target is based on a combination of P/E and EV/EBITDA frameworks. P/E: We apply a 29x multiple (1.3x our long-term growth assumption of 23%) to our 2009 EPS estimate of $0.65 to arrive at a target valuation of $19.
EV/EBITDA: We apply a 14x multiple (0.7x our long-term growth assumption of 21%) to our 2009 EBITDA per share estimate of $1.13 to arrive at a target valuation of $19 (adjusting for $3.00 in cash and cash equivalents per share).
Risks to the achievement of our price target include: (1) a decline in consumer demand for goods in the luxury "long tail"; (2) a decline in the supply of closeout jewelry, which could result in BIDZ being unable to acquire adequate amounts of inventory; (3) a small float makes BIDZ shares more susceptible to manipulation than other stocks in our coverage universe.
Now me:
It appears to me that Citron's analysis is much more profound than these bull analysis. I don't appreciate the tone of the bulls, as they don't respond to Citron's red flags, they just point to the published and public information. But everybody knows the public information, what is interesting to know is what's under the carpet.
Another issue: the company said they would buy back $20 M of their shares buy they have just $4 M in cash.
I'll keep an eye on BIDZ, as I like the sector and business model, but not the company in itself. Isn't there another one, bigger, in the same sector? Yes, it's NILE. We should have it on the Watch List too (even though, at least on the surface, BIDZ looks much more attractive).
