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If I had £100 for every time that in my 25 year career that a CEO told me “our low share price makes us vulnerable to a bid” I would right now be sitting in a luxury mansion in the Bahamas. Very few CEOs whose company’s shares are on the up say this. But guess what, in the insider dealing infested snake pit that is the City the companies that receive bid approaches are not those whose shares are tanking but those whose shares are going up.
Those companies who peddle that “vulnerable to a bid” line usually do so in the hope that it will drive investors to buy not because they actually expect one. And so I refer to an article in the Scotsman out today (HERE) which blames me for the collapse in Cupid’s share price on Friday but now worries that the company – which is after all based in the welfare addicted Greece of the North – may now suffer a bid. This article has all the fingerprints of having been engineered by a foxy PR bird – I do not think for a minute that a bid is imminent. And here is why.
- Who on earth would bid for Cupid when so many massive questions remain about its business model? You are buying a total pig in a poke. Any bidder must wait until the investigations into its operations have served up some answers.
- Would a bidder wish to buy a brand that seems so tainted?
- Cupid has between c400,000 and 500,000 paying subscribers. Even today its market cap is £41 million so any bidder with costs would be paying £43 million. Knock off net cash (I assume it is all still there) and let’s call that £33 million. That works out at a minimum of £66 per subscriber. Now given that Cupid has a churn rate of 29% (that is to say it loses 1/3 of its subs each year) is this really a good deal. Cupid’s own costs of acquiring one subscriber are c£23 and are higher than most in the industry. So why should a rival pay £66 per punter when so many questions remain about this business model?
Bottom line: newspapers get “ideas” from PR birds. The aim here is to stabilise the share price. There will be no bid for Cupid at anything like 49p a share. I see that Evil Knievil’s target price is net cash (i.e. he expects the shares to fall to 16p). Lucian Miers reckons that the net cash number will be lower and his target price is sub 10p.
I tend to go with Lucian at this juncture. But at 49p Cupid remains a slam dunk short.
Tom Winnifrith pulls no punches for 10 US & UK websites. You can follow him on twitter @tomwinnifrith and you can access all his free material at www.TomWinnifrith.com
His premium shares site, produced with the UK’s top short seller Lucian Miers and with Steve Moore is the Nifty Fifty and can be found HERE
Haha lets hope for your sake that statements you have made are correct otherwise it will be starter, main and puddin on the same tray for you.
At the moment the decline in Cupid’s share price is being driven by short sellers raising questions about the ethics of the company, and not the company’s financial performance. The company has responded by saying that is does not communicate with non-paying members and is investigating other claims. We shall see what these investigations come up with.
However, the fact remains that Cupid is a profitable and cash generative business. The high churn in its model is consistent with the casual dating/chatting markets in which it operates. It is a very different business to, say, Match.com (where users are looking for long-term partners). Importantly, cost to acquire members is growing slower than revenues per user and as a result profitability is rising. It is a different, but very profitable business model. This is not a company struggling to maintain sales growth. I’m sure if they wanted to, they could turn off their 50m marketing spend and improve profits, but the strategy is working and I don’t know why anyone would want them to change it right at this moment.
Also relevant is the fact that 70% of its business in international – and rising. Most of these users (and I dare say most of the users in the UK) read financial reports or blogs and either decide they will use the service or not.
As for scammers – I think this is problem for the industry. Just look up similar reports for Match.com, Zoosk or even Facebook and you will see identical stories. But I don’t see you suggesting IAC is a short.
14m of cash, a yield, strong top line an bottom line growth. There are the only real facts. The rest is pure speculation, and unless you can prove that fundamentals are declining, this is an astonishingly cheap stock.
The only things I agree with you on are that the company should address the allegations and that a bid story is irrelevant. IF they do answer the questions, I would not expect them to entertain any sort of bid – the stock is simply too cheap. Your 10p share price target is a joke designed to scare people and justify your change in stance.
I think you have been embarrassed by your previous buy recommendation and have been suckered in by a bear raid. There could be an almighty short squeeze here – what then?
I should have said that most of these users internationally DO NOT read financial reports or blogs.
Ditch
(registering with a made up email address) – I merely ask questions. Every fact that I have stated is easily verifiable.
Best wishes
Tom
“Welfare addicted Greece of the North” is a tad harsh don’t you think?
When will we see sub 10p Cawky? After a few more articles or in your wet dreams?