By now you probably know the poster children for the bursting of the 2012 Internet bubble:
Facebook (FB) IPO price: $38.00, Current quote $21.75 (down 43%)
Zynga (ZNGA) IPO price: $10.00, Current quote: $2.95 (down 70%)
Groupon (GRPN) IPO price: $20.00, Current quote: $6.66 (down 67%)
And as was the case in 2000, we are seeing violent selling in most any Internet company that reports a less-than-impressive quarter as a public company. We are also likely to get a repeat scenario in terms of bargain basement prices, for a time anyway, even on those companies who are able to survive and grow with a profitable business model. I think it is time to start monitoring these dot-com IPOs in search of those that might be written off prematurely. After all, unlike the late 1990’s, many of these companies do make a profit. The issue today is more that they don’t always make enough to justify multi-billion dollar stock market valuations.
Today’s disaster du jour is CafePress (PRSS), a profitable e-commerce site that has been around since, you guessed it, 1999. CafePress, which projects 2012 revenue of more than $200 million, went public in late March at $19 per share, giving it a market value at the time of about $325 million. In today’s trading the stock is falling by nearly $6, or 42%, to a new low of under $8 per share. Loss since the IPO: 58%.
So why bring up CafePress? I think it is the kind of company (a viable, profitable, and growing Internet operation) that might fall into that “written off way too early” category as the air continues to flee from the 2012 Internet company bubble. Granted, I have only spent an hour or so looking at CafePress specifically, so this is by no means a huge ringing endorsement yet, but it is the kind of stock I think warrants a closer look.
Even with reduced financial guidance for 2012 (the reason for today’s steep stock price decline), CafePress is predicting more than $20 million in EBITDA on more than $200 million in sales this year. With sales growing by about 20%, coupled with an 11% cash flow margin, PRSS is certainly a viable company. And yet, at under $8 per share, the stock price is indicating otherwise. The market value is now down to $135 million. PRSS has $60 million in cash on the balance sheet, so at current prices Wall Street is saying that the CafePress operating business is worth just $75 million, or 3 times EBITDA. That is the kind of valuation that Wall StreetÂ normally reserves for companies in a steep decline. As a value investor, numbers like these can’t help but get my attention.
Comments on the Internet stocks in general, or CafePress specifically, are always welcomed.
Full Disclosure: No positions in the stocks mentioned at the time of writing, but positions may change at any time