E-Mailbag Monday: UPS IPO, Blockbuster, Collectors Universe

Readers e-mailed Tom this week for the skinny on UPS’ IPO, Blockbuster and Collector’s Universe.

It seems like UPS should be doing very well because of e-commerce. This
week is the IPO. Do you think it will act like a “.com” IPO?

Reply: For a company that has been in existence since 1907, UPS still
has many growth opportunities. One of the most obvious is from e-commerce.
About 55 percent of all e-tail transactions clear through UPS. With the expected
surge in e-tail this Christmas, this bodes well for UPS.

However, perhaps the most compelling aspect to the business is
business-to-business. Over the past decade, corporate America has been
outsourcing many functions of the supply chain so as to get better quality,
faster time to market and low inventory. Examples of success include such
companies as Dell and Cisco.

But in order to outsource effectively, there
is a need for time-definite shipments and UPS is the leader. Time-definite
shipments have grown from 4 percent of UPS’s market to 60 percent today. Interestingly
enough, UPS can leverage its U.S. experience into foreign markets. For
example, internationally time-definite service represents only 6 percent of the
delivery market.

No question, UPS is a premier company. The company’s 330,000 employees
help deliver three billion packages per year. Last year, the company had
$24.8 billion in revenues and $1.7 billion in profits.

On Friday, the company aggressively raised the price range on the IPO from
$36-$42 to $47-$49, which is a strong sign of IPO success.

A Blockbuster Deal?

What’s your take on the AOL deal with Blockbuster?

Reply: Blockbuster Inc. (BBI)
went public and has had a lackluster performance – until the AOL deal this
week. In the deal, AOL will invest $30 million in the Web site
Blockbuster.com.

In exchange, AOL gets access to the extensive customer
database (65 million in all), as well as access to the library of home
videos and entertainment information. Moreover, AOL CD-ROMS will be
distributed in the 4,000 Blockbuster retail outlets.

The deal is very savvy and will definitely inject some energy in
Blockbuster. However, the fact remains that most of the company is still
heavily brick-and-mortar. For example, in its latest quarterly report, the
company posted $1 billion in revenues.

So, I think the impact on the
parent company will be limited. Instead, the high-rates of return will be
concentrated in Blockbuster.com, which will likely be spun-off as an IPO.
What’s more, there is no guarantee that existing shareholders of
Blockbuster will get shares in such an IPO.

Collecting on an IPO

Last week, Collectors Universe went public at $6. It is still at $6. Is
this a good buy?

Reply: It is usually a bad sign when a company has a tepid first-day
performance, which was the case with
Collectors Universe (CLCT)
. I think there is still risk of downside with the stock. The company
raised a small amount of money ($24 million) and has small underwriters —
Needham & Co and First Security Van Kasper.

Thus, it will be difficult for the company to get much coverage on Wall Street. But most importantly, the
company is in a fiercely competitive market, which is the auctions for
collectors of coins, sportscards, sports memorabilia and so on.


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