Friday, August 26, 2005
Possible IPO's
- SunPower - solar cell manufacturer. Right product at the right time, good story. Unfortunately, their model does not scale. Revenue has increased 7.5x Y/Y, but cost of revenue (raw materials and labor) has gone from 94% to 104% of revenue. Yikes! No demonstrated path to profitability, and no margin even if there was (there are lots of costs to doing business in addition to the raw materials of your product). Pass or short if it pops on the story.
- Caribou Coffee - a perfectly respectable coffee house chain based in MN. It's hard to buy an espresso machine retail in MN outside of Minneapolis. Revenue has increased 27% Y/Y and cost of revenue has remained at about 93% of revenue. Perfectly fine, but not too compelling.
- Cbeyond - small VoIP player in Atlanta, Dallas, Denver, Houston, and Chicago. They have no moat. Perfectly fine company, but no protection from competitors, and there are many, much bigger. They have had 70% growth Y/Y with a constant 86% cost of revenue. 14% margin is better, but linear scaling is boring. Add in other stuff, and they are not GAAP profitable. Pass.
- Directed Electronics - car security and 'convenience' (stereo, gps, etc) systems. Solid company, been around for 20 years, profitable for at least the last 3 years. From 2002 to 2004 revenue has increased 53%, but profit (net income/revenue) has gone from 10% to 7.4%. That's within the noise of the auto sector gyrations. The question here is why do they need the money, when their model already works? The proceeds are probably solely to pay back $185M debt to private investors. Uncompelling. Pass.
- Buy.com - a major online retailer. They invented the model of selling stuff at cost and making it up on advertising and shipping. It didn't quite work out that way, but they have matured over the last 8 years. Online retailer bright line: they have a robust
return policy (good). Proposed symbol: BUYY. Revenue dropped 21% in 2003, and was within 4% of 2002 levels for 2004. They are not profitable, and show no pattern of getting there, which they really should have after all these years. They probably need the money to survive. After a happy little run, eCost.com (ECST) tanked. Pass on long term, but will probably have a nice initial short term pop.
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