Profile:
CafePress (PRSS) sells customized t-shirts/clothing, bags, drinkware, stationary, cases, home accessories, hobby, and related items. http://www.cafepress.com/. Competition exists in this fragmented industry. More direct competitors are privately held Zazzle (http://bit.ly/1xefWC7) , Society6 (https://society6.com/) , and online Australian retailer Redbubble (http://rdbl.co/1duw5VC).
CafePress (PRSS) sells customized t-shirts/clothing, bags, drinkware, stationary, cases, home accessories, hobby, and related items. http://www.cafepress.com/. Competition exists in this fragmented industry. More direct competitors are privately held Zazzle (http://bit.ly/1xefWC7) , Society6 (https://society6.com/) , and online Australian retailer Redbubble (http://rdbl.co/1duw5VC).
Curious about the business of CafePress? Watch this interesting video.
CafePress (PRSS) is an illiquid tiny company and may NOT be suitable for many investors. Further, operations are still
a work in progress. However, its 2.5 year turnaround plan became
obvious during FY 2016. Particularly, Q4 2016 the business stabilized
generating free cash flow. But, the
market continues to ignore tangible turn around wins . Although, it has
not gone unnoticed by guru micro cap value investor Lloyd Miller. He
recently added to his 18% stake on 04/13/17 along with his heavy insider
buying during 2016.In addition, the company's 2 founders and now CEO and CMO recognized improvements by adding to their existing large inside ownership throughout 2016.
August 2014, co-founder and former CEO Fred Durham returned as the CEO along
with Maheesh (co-founder and prior executive) as Chief Marketing Officer. Durham
promised transparency throughout the turnaround process. This included an
assurance to reduce expenses with a laser focus on a quick as possible increase in shareholder value. With significant skin in the game, Durham and Maheesh are two of the
biggest shareholders and have a strong incentive to align with investors.
They now own 15% and 12% respectively.
Part one of the 3-part turnaround plan requires the heaviest lifting
before maximizing 2 and 3. Part one is business stabilization. This means doing more with less. Eliminate unnecessary
complexity that has over time diluted and then destroyed the company’s value. The
prior CEO’s drive for growth is the most troubling ingredient that destroyed
the stock price. The business focus became diluted and the customer experience suffered.
Over time, they discovered managing a large group of brands had become
counterproductive. So, a goal set to streamline operation, enhance the balance
sheet, and unlock value by selling the non-core assets. The long-term
growth strategy is the more efficient and profitable realization of a higher portion
of repeatable sales.
These are some of the TANGIBLE RESULTS ACHIEVED OVER THEIR RECENT TENURE (2.50 YEARS) TO
STABILIZE AND IMPROVE THE BUSINESS.
Closed the experimental Louisville Kentucky retail store;
sold their stationery business (InvitationBox.com); Arts and Groups properties
sold for $40 million in cash.
The above mentioned asset sales are a key for stabilizing and moving the business forward.
An important valuation comment is the 2015 Art and Group sale (http://on.mktw.net/2oEFf0t). It represent 20% of total CafePress revenue sold during 2015. The most
encouraging fact of the sale is it sold for an EV/Sales of around 1.50
versus the PRSS
current EV/Sales of .05. I calculated the Arts and Group valuation based
on the final 40M cash sale stated by management and financial data in
the press release http://on.mktw.net/2oEFf0t
"The
Art business represented approximately 20 percent of CafePress’s total
revenues in 2014." PRSS total sales for 2014 was 132.10M hence 20% of
sales = 26.42M for the Art Group. Management stated the sale settled for
~40M in cash. So the EV/Sales valuation for the Art group was
40M/26.42M = 1.51 EV/Sales valuation or near this figure. Again the
current market value for PRSS EV/Sales is .05 versus Art's sale
valuation of ~1.51
The above mentioned asset sales are a key for stabilizing and moving the business forward.
Furthermore, a reduced number of production facilities enables engineers to
focus on CafePress, improve quality and efficiency. Fewer websites means developers
can focus on enhancing the customer experience and conversion on CafePress. Fewer
marketing systems concentrates the focus on improving marketing
efficiency and customer transactions.
An external consulting firm was used to do an extensive
audit of margins, customer satisfaction, site conversion and volume. The discovered
results now guide improvements in efficiency, merchandising, pricing and
customer experience. Additionally, a review of over 600 products by starting at
the bottom 10%, in terms of sales, margin and quality were removed and discontinued
on their site.
After the above mentioned asset divestiture, engineering efforts can focus on improving
mobile and social technology. The
company is constantly looking to leverage technology progress that can cut
friction and conversion. These technology improvement efforts will improve the
customers experience. Overall, meaningful opportunities exist to drive an improved
CafePress as their mobile channel matures and gains scale.
Lets continue reviewing the turnaround plan. Durham commented an improved customer experience
is an important personal area of focus. He promised to drive the team on consumer
side quality and encourage a world class customer experience. Customer service
now reports directly to Durham.
The tables below show Quarterly and Annual financial results. This underscores CafePress' deep asset value discount to its current market price, coupled with a stabilizing and improving 2016 financial results.
Only Insider Buying no Selling from 2015 to 04/13/2014
04/13/17 Valuation: Market Cap = 48.10M, Enterprise Value = 4.66M, P/B = 1.08, EV/Sales = .05, YOY qtrly revenue growth = 6.06%, Total Cash = 43.79M, Cash per share = 2.63, 52 Week High = $3.82, 52 Week Low = $2.78, Share Outstanding = 16.64M, Float = 7.94M, % held by insiders = 46.33%, % held by institutions = 22.10%
Opportunities
Deep
discount to its historical and relative valuation. To repeat
the above comment, Arts and Groups properties sold during February 2015
had an EV/Sales valuation sale price ~ = 1.50. This compares favorably
to PRSS current EV/Sale value of .05
It’s too cheap to ignore. A 04/13/17 closing price of $2.85 and an enterprise value per share =.33 versus cash
per share = 2.62, no debt, TTM gross profit per share = 2.51 and net cash per
share = 1.52.
Large federal and state operating loss carry forwards available to reduce future taxable income. 25.2 million of Federal and $19.0 million for the State.
Large federal and state operating loss carry forwards available to reduce future taxable income. 25.2 million of Federal and $19.0 million for the State.
The original founders came back to turn the company around with skin in the game.Their combined
ownership is over 25% TSO. They continued insider buying since their 2014 rearrival.
Successful small cap activist Lloyd Miller can’t get enough shares , 18% of TSO with additional buys reported on 04/13/17.
Major turnaround activities completed. FY 2016 shows tangible signs of
improvements. "Year-over-year revenue growth improved each quarter from
negative 23% in Q1 to positive 7.5% in Q4". Positive CFFO during FY 2016 Quarters
3 and 4. Positive FCF in quarter 4 2016.
Mean reverting price attributes with 52 week market price change of -23%, -64% drop in the enterprise value from the 2014 value of 15.37M to 04/13/17 value of 5.54M.
Aggressive share buyback program, year end 2013 17.17M shares outstanding versus the MRQ reduced balance of 16.66M
Three new industry proven board members. Ken McBride is the CEO of Stamps.com. "He played a crucial role in the company's turnaround and has since lead it through steady improvements to impressive success." Nick Swinmurn, the founder of Zappos, is "a pioneer in consumer e-commerce and brings valuable consumer centric experience and creativity to the company". Tony Allen is the CFO of Sypris Solutions and brings extensive financial experience and expertise to our Board.
Acquisition target, going private transaction or special cash
dividend based with the 2.62 per share in cash. Activist Lloyd has a history of
forcing special dividends. These are all high probabilistic events ignored by the market.
Risk
Lacks a strong moat.
Illiquid nano cap deters institutional ownership and lacks strong Wall Street coverage.
Closely held with 46% held by insiders.
May be unable to generate sustainable consistent profits and could be adversely impacted by competition.
Long: PRSS
