On the Record with Michael Rubin

Consumer e-commerce stocks have become the forgotten stepchildren of the tech sector. But does Global Sports deserve a second look?

If Global Sports founder and CEO Michael Rubin has his way, Wall St. won’t have any choice but to pay attention to his company’s progress very soon. This leading operator of sporting goods sites took a small step in this direction earlier this month by announcing that it would post a smaller than expected loss for its fiscal fourth quarter.

Global Sports now expects fourth quarter sales to top analysts’ estimates of $19.3 million with an operating loss of less than the $9.9 million that analysts had been expecting. In addition, in a sector plagued with e-tailers struggling just to stay afloat, Global Sports ended 2000 with roughly $93 million in the bank. Perhaps most impressive is the fact that Rubin secured almost $41 million of this capital back in September when the tech sector was still collapsing.

With the purchase of struggling competitor Fogdog.com last October, and reports out suggesting that high profile sporting goods site MVP.com is on life support, Global Sports appears to now have the online sporting goods category virtually to itself. The company now provides its soup-to-nuts e-commerce solution to fourteen different partners including Toys R Us , Kmart’s Bluelight.com , Bally Total Fitness , Oshman’s Sporting Goods and The Sports Authority among others.

While Global Sports appears to be on the right track to profitability, with quarterly losses decreasing and sales rising, investors have the right to remain skeptical about the future of any e-tail related company. Thus, we recently sat down with Rubin to hear about his future plans for Global Sports and his outlook on the entire e-commerce sector.

ISR: Let’s start things off with a description of Global Sports today and what makes the company unique from almost any other e-tailer?

Rubin: For us, what is totally different is that we are providing an end-to-end e-commerce solution versus a lot of companies that are out there trying to build their own brand. With this model, we have the benefit of alleviating the majority of the marketing expenses as our partners are really growing their businesses. We’re providing these partners with the entire infrastructure and are consolidating all of the demand for a particular category, which is sporting goods.

ISR: Okay. What are some of your most high profile partnerships at this point?

Rubin: Our biggest partner as an example is The Sports Authority. They are the largest full-line sporting goods retailer in the U.S. We run their entire e-commerce business for them from the actual fulfillment and customer service to their site’s underlying technology. The way our relationship works financially is that Global Sports records the sales and then gives what you could almost consider a royalty to our retail partners.

ISR: So you get the immediate benefits of not having to try and build yet another online brand name from scratch, but leverage existing brands instead.

Rubin: Right. Our retailers are doing all of the branding. So if you go online to The Sports Authority’s Web site, it is really a site that we’re running for them. We also have the same type of relationships with companies like The Athlete’s Foot, Oshman’s Sporting Goods or FoxSports.com. Today we have fourteen partners. We started the business a little over a year ago with five partners.

ISR: Global Sports ended this past year with over $90 million in cash. You acquired struggling sporting goods e-tailer Fogdog.com near the end of last year. Do you see any future acquisitions in the cards?

Rubin: I would never say never. The Fogdog acquisition was very opportunistic for us. We looked at it as the opportunity to pick up a company for virtually its cash value.

They were also one of our competitors. Certainly, that acquisition further validated our market dominance. I think within the sporting goods category, though, that there’s really not much else out there. Outside of the sporting goods industry, there certainly could be some possibilities.

ISR: If an investor is willing to warm up to a consumer e-commerce stock again, why should Global Sports be at the top of their list?

Rubin: From my perspective, there are twenty to twenty-five public e-commerce companies today. In another six to nine months, there will probably be only six to nine e-commerce companies left. I think we have the biggest upside far and away for investors since we have a relatively small market capitalization. If you look at our long-term economic model just based on analysts’ expectations, it has us generating in four to five years, $500 to $600 million dollars in annual sales. Therefore, if you just look at us on a multiple of earnings with a 12% operating model, I think that there is a lot of upside in our stock.

ISR: It sounds to me like you are pretty down overall on the outlook of survival for most pure play e-tailers, though?

Rubin: Yes. I think it’s terrible and has every reason to be terrible. From my perspective, most of these companies didn’t have good business models to start with and Wall St. got behind some companies that just didn’t make a lot of sense. Now, the world is really rationale again, so I think most of these companies will go away. But I think that the smart investors will start to pick the winners and the losers and that there will be tremendous upside for the handful of winners. We certainly expect to be one of those winners.

ISR: As a final question, help us look out into the future and really see how Global Sports can seriously become a $500 to $600 million in sales company?

Rubin: I see three key components to this. The first is the shear growth of the Internet, which is probably growing forty percent to fifty percent a year. Just extrapolating that out would get you to a run rate of a little over $100 million dollars. Within four or five years, one figures this number could grow to $300 million dollars annually. But I think the two bigger issues are the addition of more partners in the sporting goods category. We have certainly proven our ability to bring partners aboard. Then, the third part is to leverage the infrastructure that we have today into other categories that could make sense for us.

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