by Travis Johnson, Stock Gumshoe | May 7, 2014 4:19 pm
As of May 14, Leeb is also now pitching this as a major holding of the “other Oracle of Omaha”, though the rest of the ad is mostly unchanged… that’s a reference to fund manager Wally Weitz, who I mention more below and whose funds are large holders of the stock teased.
Stephen Leeb[1] has a new pitch out for his Brain Trust Profits[2] letter (edited by Scott Chan[3]), and it’s all about how to catch the next wave of social media profits.
Which is probably a bit poorly timed, given the recent collapse of Twitter and of so many of the social media stocks after their bubblicious run, but certainly interactive and crowd-sourced information is growing online by leaps and bounds, a lot of social media companies are nicely profitable, and connecting with other people remains one of the huge benefits of the internet (heck, I guess we’re even a bit of a “social media” business here at Stock Gumshoe, though, surprisingly enough, the fat cat private equity investors have not been hiking up Gumshoe Mountain to have a chat with yours truly… perhaps the moat and the alligators are scaring ’em off).
But we always do delight in sniffing out new stock ideas for you, so let’s find out what Leeb is selling. Here’s how he gets our motors revving:
“Online Dating is Hotter than Ever…
“But the profits are nothing compared to what’s coming NEXT.
“If you missed Match.com’s rise, no worries, because if you get in front of this mega-trend you stand to gain much more!
…
“Not only did companies like Match.com help revolutionize one of mankind’s oldest rituals, it made investors a mint in the process.
“That’s why I am writing to you today…
“The Biggest Social Media Opportunity EVER?
“You see, online dating has paved the way for my top secret pick: A web and media innovator that has reshaped two entire industries and is poised to hand investors immense profits.
“This web phenomenon picks up right where online dating leaves off—and is going much, much further.”
Intrigued? Of course! So what’s he talking about?
“The first industry my top pick has transformed was once a seasonal, side business for many.
“Today it is an all-season, mega-industry fueled in part by new technology and social media.
“I’m talking about the booming NEW wedding industry.”
Spending on weddings has continued to balloon in the United States, and Leeb says it is now no longer seasonal (people get married year-round to a much greater degree now), and the “production” of weddings, including all the associated days around the event and the guest services, has only gotten more ridiculous. And, of course, men are now dramatically more involved in weddings than they used to be, giving them more people to market to.
Hard to argue with that — I’ve been married for 15 years, but even back when Mrs. Gumshoe and I entered bliss we remarked on the silliness of the wedding economy… “One large round tiered cake to feed 100? That will be $120. Oh, it’s for a wedding? I’m sorry, I mean to say $900!”
More from Leeb:
“My favorite pick offers an extensive portfolio of wedding themes, locations, local vendors, reviews — and the mobile app to make it all happen. So, if an engaged couple in Michigan dreams of a Key West “island” wedding, my top-secret pick holds the key….
“My Top Secret Pick “Owns” The Wedding Industry: 80% of US Engaged Couples Go Here!
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just click here...“The co-founder of my favorite pick claims 80% of American couples planning a wedding use their web and mobile-based service.
“Called ‘the chicest site in cyberspace’, those who enter it have access to a blizzard of tips, ideas and videos on everything from dresses, venues, and invitations to gift registries, receptions, vendors and so much more.
“Not only that, it offers 1,000+ accessories, favors, books, attendant gifts, and more, along with a directory of 150,000 vendors nationwide. Friends, families and guests can conveniently purchase merchandise right on the site. The online bridal sales market potential alone is estimated at $1 billion — and my top-secret pick “owns” this space. Pardon the pun, but advertising revenue is icing on the cake for my top-secret pick.”
And apparently this secret stock has expanded overseas as well, bringing wedding ridiculousness to a whole new population:
“In fact, this stellar outfit has grown so much by catering to couples here in America, it launched a similar service in China[4], targeting the estimated 12 million Chinese couples who will marry this year.
“The result: Its Chinese portal has already become the top online wedding media in the country!”
And Leeb says that it doesn’t stop at weddings …
“You see, not only is this microcap a wellspring of crucial information for enagaged couples, its sister service provides the same blizzard of guides, tips, apps and tutorials for expectant parents.”
So who is it?
This is XO Group (XOXO) — cute ticker, right? They used to be known as TheKnot.com, ticker KNOT, which was started up right near the peak of the late-1990s dot com explosion. The company really took control of the online wedding media business when they bought out competitor WeddingChannel.com back in 2006, but they renamed themselves when they moved over to the NYSE from the Nasdaq a few years ago and started to focus on growing their newer services, largely TheNest.com (for cohabiting couples learning to live together in hipness and harmony) and The Bump.com (for new and expectant parents who mistakenly believe they can prepare for the craziness of parenthood). In addition to the websites and mobile and social apps, they also publish wedding magazines and run trade shows for the industry — all of those businesses are tiny compared to the core web properties, but I guess they must help to expand the brand awareness.
They now call themselves a “lifestages” company, which means they can serve up a pretty appealing mix for potential advertisers — lots of ready buyers making big and expensive life transitions to new partners, new homes, or expanded families. TheKnot.com is still the heart of the business, and it seems like this should be a money-gushing company, but they’ve been having a rocky time for a couple years and the shares have come down — overall performance peaked for KNOT back in 2006, and XOXO has never really approached the 90 cents per share that the company earned that year during the early days of what seemed to be an unstoppable growth engine (2013 earnings were about 23 cents).
So what’s the problem? Well, revenue has been flat for the last couple years — and in the fourth quarter last year, they boosted spending quite a bit and didn’t make a profit. That boost in spending and their recent transition to a new CEO (the co-founder and former CEO, David Liu, is switching to focus on strategic growth, particularly in China) are part of what they hope will be a reinvestment in future growth — they’ve particularly been building up their mobile offerings, including more powerful wedding planning apps for smart phones, and on growing their brand in China to feed the mythology of the perfect wedding to the next generation of new consumers.
Sorry, didn’t mean to make that sound cynical. I had a great time at my wedding, I just don’t so much like other people’s weddings.
Which means the company is in a transition — investing in growth, looking to boost the future, and getting more personalized and local with their marketing (national brand advertising was down for them last quarter, local ads were up). I don’t know if it will work or not, but even in a fairly weak year earnings-wise they have had decent free cash flow and they added to a substantial cash balance (they now have about $90 million in cash on the books and no debt, pretty impressive for a $250 million market cap company), so the company isn’t in stress[5] as far as the balance sheet goes. But if they want the stock to go up, they’re going to have to hope that their current investments in China and in mobile do boost the top line before too long. Companies that are in transition usually have interesting conference calls, you can see the latest XOXO call transcript here[6] if you want to get a better idea of how they’re investing and planning.
What caught my eye at first when looking at this one is that Wally Weitz’s firm owns just under 10% of the shares (if his name isn’t familiar, there was a nice profile of Weitz Funds in Barron’s in January[7]), and notable value manager John Rodgers at Ariel is also a substantial shareholder — those are some big names in the “fundamental value” camp, and they’ve both been shareholders for a while (Ariel’s stake shrunk recently, it appears, Weitz’s has been pretty flat). That doesn’t necessarily mean the stock will be a great investment, but if you back out the cash position it’s trading for about 12X last year’s free cash flow — not cheap, but perhaps a better valuation than you’d assume by looking at the trailing PE in the 40s and the forward PE of about 30.
So … do you think their investments will pay off? Spending on weddings is a bit correlated with the economy and did dip in 2008 and 2009 but has bounced back pretty nicely — and perhaps the Wall Streeters will eventually fixate on the fact that the average Manhattan wedding costs almost $90,000 (that’s about three times as much as the national average) and decide that XOXO is a great buy, who knows. For now, I think the niche marketing they can offer is very appealing, I’m intrigued with Weitz holding a substantial share and with the sharp drop from their highs in recent months, and I’m curious as to whether their strategic moves will pay off… but I’m not rushing off to call my broker just yet.
But it is, of course, your money — so your opinion is the one that matters. Share it with a comment below, and if you’ve ever tried out Brain Trust Profits you can review it for us here[8] (the only other teaser pick of theirs that we’ve sussed out, their tease of HomeAway back in January[9], has not been a winner, but we don’t know what else they’ve been suggesting in the meantime). Thanks!
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Stephen Leeb is a consummate salesman. I have observed his antics for the past 30 years. Believe him as much as you would believe Porter Stansbury, The Oxford Club and their ilk. They just want to take your money and could care less about whether they help you investment-wise. BTW, I have no axe to grind. I have never taken their advice!
Looks to me like the marriage rate is declining!
http://www.pewsocialtrends.org/2011/12/14/barely-half-of-u-s-adults-are-married-a-record-low/
http://www.livescience.com/38308-us-marriage-rate-new-low.html
That’s a lagging economic indicator, I think. I would expect marriages to pick up (household formation in general sinks during recessions — and perhaps all those 20-somethings still living in the familial basement are having trouble getting dates)
From what I’ve read, the marriage, birth, and household formation rates all bottomed in 2011 and have been rising again for a couple years.
Do you know anything about Nova X AND THE Operation Blue Star and Tesla’s silent partner?
Pardon the bother Travis but I was wondering if you were going to sleuth out the whole “battery of the future thing” being pumped by the S&A guys?
Hi,live your site. I read an arrival about A Tesla project named BlueStar and would live to know more about there plans with it.
Travis, Stephen Leeb was also pitching a new Wyoming Oil Driller that could turn $10,000 into $150,000, located in the Mercantile, Big Horn area. I was hoping your Thinkolator could come up with a symbol for us if you saw his pitch. Thanks.
He did pitch an oil stock that has some Wyoming territory last Fall, don’t know if that’s still being circulated at the moment — my article on it is here.
About 25 years ago a friend met Leeb at a party. Leeb told him he never buys stocks, makes all his money selling advice.
for whatever it is worth there are old magazines on the market for future wedding couples, future parents, and no doubt other pending life-cycle events. Future divorce, future spousal murder, future adoption, future disinheritance, how to get out of jail.
Why would anyone sign up for information overload? and ads galore? Everything doesn’t have to hit the web, methinks.
I managed to get married 5 decades ago without more than my parents’ input and then
managed to marry off my offspring with a certain amount of hoopla they picked without
excess feed from the seeing eye of the Internet. Dr Leeb is about my age, by the way, so
I think he is being taken in by novelty.
Comment on Stockwatch.com re XOXO:
James Dines, writing in a March 28, 2014, issue of The Dines Letter, notes a sale of XO Group Inc. at $10.50 (all figures U.S.). He said buy on Sept. 20, 2013, at $13.29. Assuming an investment of $1,000, selling at $10.50 would result in a $212 loss. Mr. Dines does not discuss XO in this issue; he just records on the newsletter’s back page that the stock was stopped out.
Travis… my favorite line in your synopsis is this one, “…. (for new and expectant parents who mistakenly believe they can prepare for the craziness of parenthood). This is an all-time classic observation that we can all identify with.
Thanks…
No Thanks on this “opportunity.” If my two daughters’ recent marrages are any indication of a trend in America to go simple, this stock won’t cut it. Daughter #1 (a NeoNatal Nurse Practioner w/PHD — makes big $$) married a Pediatric Heart Surgeon (who makes even bigger $$$). They eschewed the (?) falderall (?) of a big wedding. Got married by their local pastor for free, then held a “pot luck” buffet in their backyard. Jeans and shirts only requirements. Guests had to bring something to eat. No presents, etc. I paid for the beer and wine. It was nice. Daughter #2 did the same thing. She’s a Special Needs Counseler/Autism and her new hubby is a clinical psychologist (both make a very nice living). Same deal, local pastor, no showers, no rehearsals, no catering. They did a BBQ in their backyard. I paid for the meat and beer/wine. No where near $90,000 for a Manhatten wedding.
Are any you gumshoe followers seeing or experiencing this trend?
Re wedding hoopla: It’s a socio-economic pyramid. At the tiny top are the fairly well-paid professional/intellectual classes who opt for blue jeans barbecues. The farther down the pyramid you go, the greater the proportion of income, savings, and debt thrown into what is regarded as one big blast of a lifetime. See the film “The Catered Affair” — the best work Debbie Reynolds ever did, and Bette Davis wasn’t too shabby — to see wedding frenzy in the South Bronx.
Tesla, Blue Star, lithium? I’m thinking Panasonic
I have an idea for a trunaround stock in the wedding business, the laggard Spark Networks
which is being harrassed by dissident shareholders. Sparkless Spark operates the J-Dating website (which brings Jewish couples together) and is expanding into Christian dating. Muslims and Buddhists and Jains and Hindus will follow in due course. Plus same-sex variants on all the above.
However this 2-year old outfit is hopelessly badly managed. The Osmium Partners who own about 18% of the stock are now mounting a proxy fight to get control of the board. The potential is of course huge, all those ads for wedding halls, dresses for bride and attendants, honeymoon destinations, gift lists, whatever. And then you use the list for baby showers and diaper sales later followed by Bar and Bat Mitzvah ceremonies (now over the top in many parts of the USA).
It is of course a much smaller play and not suitable for pitching to a huge audience of patsies like XOXO being promoted by Stephen Leeb, whom I know and rather like.
I offer this in the spirit of helpfulness as I own the share and just got the dissident proxy. The reason I own it is a family secret.
$$ Vivian: have read your investment ideas for years. Top quality. your monster call on nokia was one of many. shalom
I forgot to say the Spark Network ticker symbol on the NYSE Market is LOV which is even better than XOXO
Whenever you read something for Steven Leeb, RUN THE OTHER WAY as fast as you can. I subscribed to his newsletter for a few years and LOST a bundle with his “recommendations”. He is the consummate huckster and with a degree in psychology and knows how to milk the masses for their money. I don`t believe anything that he writes or espouses to know. Too bad I had to learn the hard way.
Caveat: STAY AWAY!
For those inquiring about Operation Blue Star, Travis knocked it out of the park. Read his article from a few days ago,
http://www.stockgumshoe.com/reviews/nova-x-report/whos-teslas-operation-bluestar-silent-partner/