Comments on: Ebaum Sells Out: Pockets $20 – $50 Million For 10 Million Visitors http://davisfreeberg.com/2007/08/06/ebaum-sells-out-pockets-20-50-million-for-10-million-visitors/ Wed, 31 Aug 2011 01:39:44 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: microcap speculator http://davisfreeberg.com/2007/08/06/ebaum-sells-out-pockets-20-50-million-for-10-million-visitors/comment-page-1/#comment-79581 microcap speculator Wed, 08 Aug 2007 17:02:58 +0000 http://davisfreeberg.com/2007/08/06/ebaum-sells-out-pockets-20-50-million-for-10-million-visitors/#comment-79581 You have pinpointed the reason why I am not short ZVUE. While I think the weight of the evidence makes this a questionable bet as an operating company, a takeout -- even at levels you and I might think unreasonably high -- is a distinct possibility. Shorts underestimate how easy it would be for the stock to spike if the company issued a single press release announcing that it was discontinuing the money-losing hardware biz, focusing all efforts on the websites that investors care about, and hiring an advisor to explore strategic alternatives. You have pinpointed the reason why I am not short ZVUE. While I think the weight of the evidence makes this a questionable bet as an operating company, a takeout — even at levels you and I might think unreasonably high — is a distinct possibility. Shorts underestimate how easy it would be for the stock to spike if the company issued a single press release announcing that it was discontinuing the money-losing hardware biz, focusing all efforts on the websites that investors care about, and hiring an advisor to explore strategic alternatives.

]]> By: davis http://davisfreeberg.com/2007/08/06/ebaum-sells-out-pockets-20-50-million-for-10-million-visitors/comment-page-1/#comment-79580 davis Wed, 08 Aug 2007 16:21:46 +0000 http://davisfreeberg.com/2007/08/06/ebaum-sells-out-pockets-20-50-million-for-10-million-visitors/#comment-79580 Thanks for the encouragement and clarification on the financing. I agree that the cost of the financing will be significant, that is part of why it's so hard for me to figure out what a company like this should really be worth. If I was thinking about putting my own money in (which I'm not) I think I'd probably wait for some of the Ebaum buzz to die and for the financing pieces to be a little more clear. Still I think we both agree that the financing looks a lot cleaner than what's standard for the microcap industry. It doesn't mean that the company will be successful, but it's a positive sign, when proceeds from an underwriting actually go towards making the company stronger. It's also tough to figure out the true value, because when it comes to these web communities, they aren't being valued at traditional metrics. That's part of why I thought 6x EBITDA sounded like a decent deal for both parties. With so much misunderstanding on how web communities work, these are either going for nosebleed prices or are really cheap. I'm sure that Yahoo! was happy to pay $35 million when they bought Flickr, but not every site will be a homerun. Still, when I see CollegeHumor selling half of their company to IAC at a $40 million valuation with 6 million uniques, it makes me wonder what a company like ZVUE is worth, with about four times the total traffic and a very similar demographic. If they can figure out ways to better monetize the sites, than a valuation will be easier to pinpoint, but given their past history with the mp3 players, I can understand why someone would (in fact should) be skeptical of management's ability to execute on this. Only time will tell what happens, but I see this one as being high risk, but at least some kind of a potential for high reward, if things come together right. Thanks for the encouragement and clarification on the financing. I agree that the cost of the financing will be significant, that is part of why it’s so hard for me to figure out what a company like this should really be worth. If I was thinking about putting my own money in (which I’m not) I think I’d probably wait for some of the Ebaum buzz to die and for the financing pieces to be a little more clear. Still I think we both agree that the financing looks a lot cleaner than what’s standard for the microcap industry. It doesn’t mean that the company will be successful, but it’s a positive sign, when proceeds from an underwriting actually go towards making the company stronger.

It’s also tough to figure out the true value, because when it comes to these web communities, they aren’t being valued at traditional metrics. That’s part of why I thought 6x EBITDA sounded like a decent deal for both parties. With so much misunderstanding on how web communities work, these are either going for nosebleed prices or are really cheap. I’m sure that Yahoo! was happy to pay $35 million when they bought Flickr, but not every site will be a homerun. Still, when I see CollegeHumor selling half of their company to IAC at a $40 million valuation with 6 million uniques, it makes me wonder what a company like ZVUE is worth, with about four times the total traffic and a very similar demographic. If they can figure out ways to better monetize the sites, than a valuation will be easier to pinpoint, but given their past history with the mp3 players, I can understand why someone would (in fact should) be skeptical of management’s ability to execute on this. Only time will tell what happens, but I see this one as being high risk, but at least some kind of a potential for high reward, if things come together right.

]]> By: Microcap Speculator http://davisfreeberg.com/2007/08/06/ebaum-sells-out-pockets-20-50-million-for-10-million-visitors/comment-page-1/#comment-79526 Microcap Speculator Wed, 08 Aug 2007 10:01:56 +0000 http://davisfreeberg.com/2007/08/06/ebaum-sells-out-pockets-20-50-million-for-10-million-visitors/#comment-79526 Davis, This is a well-reasoned counterpoint to my more skeptical evaluation of the deal. The key, of course, will be translating eyeballs to dollars. I have my doubts, but if they pull it off I will be the first to admit that I misjudged them. A slight clarification on the financing: you correctly note that it is exceedingly rare for a microcap company to price shares in a private placement above market prices. I can only think of two instances in the past two years -- Crystallex (KRY) and Littlefield (LTFD.OB). But this was not an above-market placement -- it was a convertible debenture, which frequently have conversion prices slightly to substantially above the prevailing market price. The warrants provide extra incentive, or return, for the buyers. The value of the warrants can be determined using standard black-scholes or binomial pricing models, and should be considered an extra "cost" of financing. Given the stock's volatility and their the value of those warrants is probably over $1. With 5.7 million covering $24 million in financing, the cost of that incentive is substantial. At the same time, the interest rate is fair and the fixed-conversion price far more shareholder-friendly than a floorless convert. Overall, the financing is fairly good. Let's see what the company can do with the deal. Davis,
This is a well-reasoned counterpoint to my more skeptical evaluation of the deal. The key, of course, will be translating eyeballs to dollars. I have my doubts, but if they pull it off I will be the first to admit that I misjudged them. A slight clarification on the financing: you correctly note that it is exceedingly rare for a microcap company to price shares in a private placement above market prices. I can only think of two instances in the past two years — Crystallex (KRY) and Littlefield (LTFD.OB). But this was not an above-market placement — it was a convertible debenture, which frequently have conversion prices slightly to substantially above the prevailing market price. The warrants provide extra incentive, or return, for the buyers. The value of the warrants can be determined using standard black-scholes or binomial pricing models, and should be considered an extra “cost” of financing. Given the stock’s volatility and their the value of those warrants is probably over $1. With 5.7 million covering $24 million in financing, the cost of that incentive is substantial. At the same time, the interest rate is fair and the fixed-conversion price far more shareholder-friendly than a floorless convert. Overall, the financing is fairly good. Let’s see what the company can do with the deal.

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