LiveDeal’s Margins Set to Outperform Amazon and Overstock.com
Recent press releases and anecdotal data indicate that the LiveDeal, Inc. (NASDAQ – LIVE - $3.29 – Spec Buy) e-commerce platform is gaining meaningful traction across the country, as it transitions from a purely local restaurant deal site to a national distribution center known for savings, like major online retailers such as Overstock.com (NASDAQ – OSTK – NR) and Amazon.com (NASDAQ – AMZN – NR), with whom the Company has a relationship. In a recent release, management noted that while the company continues to offer its "instant offer" approach to local restaurant deals in the 50 cities where it has established a foothold, it has expanded its focus to the entirety of North America, where it offers "real-time" savings on a variety of products.
Interestingly, it appears as if the Company is engaged in a novel approach that may prove to generate greater sales growth than the highly successful models of key online retailers, and with potentially greater operating performance metrics.
Overstock is a web-based retailer primarily known for offering housewares at closeout or below market prices while Amazon is the go-to consumer site with a very profitable inventory of electronics and electronics media, as well as other product categories. However, due to their business models, both companies, especially Overstock, generate low gross profit margins. For 2014 Amazon recorded a gross profit margin of roughly 30%, while Overstock’s margin was just over 18%.
In contrast, ModernEveryday Inc., a LiveDeal subsidiary, is on track to generating significant gross profit margins later this year as it begins to produce some of its most popular goods, thereby giving it substantial pricing power. This subsidiary’s operating performance success in 2015 should prompt LiveDeal to outshine the valuation afforded companies like Overstock, whose fortunes are also tied to the household and housewares segments, and trades over 30x this year’s EPS estimate.
Even before the gross profit numbers are in, it is clear that LiveDeal is making meaningful progress in its bid to emerge as a national distribution player. According to Alexa, the ModernEveryday site enjoys a 2:1 advantage in page views and a nearly 3:1 advantage in consumer’s time on site, versus Overstock, and it is possible that the valuation of a similar magnitude will follow.
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Senior Analyst: Robert Goldman
Rob Goldman founded Goldman Small Cap Research in 2009 and has over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.
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