Friday, May 29, 2009
It has been a while since I last posted. My real day job has been pretty busy, but let's jump straight into some stock editorial. Two stocks received some prominent focus this week in the press. OpenTable and Borders. OpenTable kickstarted an IPO on a very high note, trading 59% on the opening day. They run a business of selling reservation systems to restaurants (hardware/software), but most of their focus at the launch of their IPO centered around their online reservation business at opentable.com. Customers can secure reservations online, the restaurants pay for the service. A lot of hype pushed this stock beyond a reasonable valuation during their IPO launch. The restaurant business is extremely competitive in a good economic environment. Its going to get tougher, some chains will have to shut restaurant locations down. For OpenTable to sell hardware/software into their current accounts will be tough, growing that base will be tougher. Opentable.com's online reservation site is a one trick pony, and they have to convince more people to drop phones and reserve online. The valuation is not sustainable. Now moving on to Borders. This company has some major headwinds to overcome besides the economy. The company reported a loss of $86 million for the quarter compared with a loss of $31.7 million a year earlier. Borders carries short term debt of $319 million, and long term liabilities of $374 million. They currently carry cash and equivalents of $45.7 million. If you do some simple math and look at their cash flow from operations for the quarter, you'll see that they scraped only $2.4mm from operations, for which they dumped straight into capital expenditures (keep the lights on projects most likely). Liquidity problems will surface towards the end of 2009 and early 2010 if they do not pick up sales quickly. The competition from Barnes & Nobles and Amazon will continue to put the squeeze on Borders. While Amazon focuses on strategic direction and new business models, Borders will be focusing on survival. Investors need to stay sensible. One company has an extreme valuation, while the other will be fighting against liquidity issues.