2HRS2GO: Big conference doesn't mean big crowd
SAN FRANCISCO -- Presenting in Salon IV must be like doing stand-up in a Nevada desert lounge at 3 in the morning. Except the lounge has more color.
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Banc of America Securities has a quartet of rooms for formal presentations during the investment bank's Technology Week 2000 at The Ritz-Carlton Hotel. If you're Microsoft (Nasdaq: MSFT) or Intel (Nasdaq: INTC), you get Salons I and II, with the partition removed between the rooms.
Highest profile issues like Amazon.com (Nasdaq: AMZN) and Applied Materials (Nasdaq: AMAT) land in Salon I. Well-known players such as Macromedia (Nasdaq: MACR) and SCI Systems (NYSE: SCI) get the equally large Salon II.
Door Three opens to a host of smaller companies along the lines of Silknet Software (Nasdaq: SILK) or even large but quietly traded concerns like Tech Data (Nasdaq: TECD).
Finally, behind Door Number Four along with lost luggage, abandoned pets and containers of Monty Haul's Chicken Fat, stand the remainders: private companies hoping to attract a bit of institutional funding (incidentally, non-public outfits often give the most interesting talks because they're new and, being private, don't have to worry about Safe Harbor stuff); the occasional flameout like TheGlobe.com (Nasdaq: TGLO); and interesting but overlooked outfits.
How bad does it get in Salon IV? During most of this week, you could have wandered in found a handful of folks staring vacantly into space, and at least one person with eyes closed. All the place needs is watered down drinks and an entertainer's microphone in place of the podium.
"So what do these guys make again?" asked a fellow who somehow managed to miss that rather important point despite sitting through most of a presentation yesterday in IV.
Consider the case of the guys in question, executives of Cybex Computer Products (Nasdaq: CBXC). The company has nifty technology in the form of devices that let you access multiple computers from a single point -- Cybex's lowest-end offering lets one monitor, one keyboard, one mouse can control up to four servers, and that's just the start of a product line that scales massively to cover everything from $100 switches to corporate-wide set-ups with six figure price tags.
Top and bottom lines are growing solidly, with annual growth average of 46 percent for revenue and 50 percent for net income. In the first nine months of fiscal 2000, Cybex generated sales of $80.2 million, nearly equal to revenue for all of fiscal 1999. And that's just the beginning -- Cybex owns a strong position in a market estimated at multibillions by at least one research firm, International Data Corp.
Best of all for shareholders, the stock has performed magnificently. Over the past 12 months, CBXC soared from 14 1/2 to as high as 61 and change a couple of weeks ago -- an improvement of more than 320 percent. A 3-for-2 stock split is coming up later this month.
In other words, we're talking about a dandy of a company in every sense that matters to Wall Street.
Yet few people know about it and fewer seem to care. Cybex's daily volume rose above 600,000 once in the last 52 weeks, and averaged just 139,000 over the last 30 days. Scarcely 70,000 shares moved yesterday.
That level of apathy was reflected by the gathering at yesterday afternoon's CBXC presentation. Less than 20 of Salon IV's 75 seats held audience members, and as far as I could tell, just one of those folks wrote anything down. And those notes were jotted down by the same hands typing this sentence.
(Why do you think today's column mentions a bunch of other companies? If I didn't throw them in there, the Yahoo! Finance distribution engine would send this piece only to the CBXC headline list, meaning almost no one would see it, let alone read it.)
Being a hardware company accounts for some of the disinterest. In a market that focuses all its attention on e-commerce, high-speed networking and communications, Cybex and its ilk draw little attention. Peripherals aren't cool, even if they save tons of money for customers while generating 30 percent operating margins for the manufacturer, as is the case with Cybex.
Being in Huntsville, Ala. doesn't help in generating Wall Street excitement. Some contract electronics manufacturers (including the aforementioned SCI) work out of Huntsville, telecom sensation Worldcom (Nasdaq: WCOM) operates in Mississippi and a few other hot tech companies thrive in small areas; but as a general rule, you don't get much attention if you're not close to a cutting edge technology center, whether it's Silicon Valley, Boston, the PC concentration in Texas or other regions that would be thrilled to drag out tech testimonials from their local Chambers of Commerce.
Cybex's slightly larger and only publicly-traded peer, Apex (Nasdaq: APEX), gets more attention, based on trading volume. Yet even Apex's average daily volume of 365,000 is light by contemporary standards.
I doubt Cybex frets over it. When your stock has quadrupled over the past year while avoiding heartburn-inducing volatility, you don't worry about a dearth of Wall Street attention.
But in today's environment of obsessive investing and repetitive analysis, at a conference filled with analysts and money managers desperately searching for new places to put their money, it's amazing to see the Cybexes of the world ignored.
Other issues:
Until this morning's eToys show.
I went in with a positive view of eToys. In the past I've said the online retailer of children's goods is doing everything right. I still believe eToys does a good job managing its operations.
But I wonder if that's enough.
eToys CEO Toby Lenk listed his company's four perceived advantages over clicks-n-mortar retailers: a pure e-tailer is built solely for online commerce, physical companies must learn new skills; e-tailers see a new market, old firms see must cannibalize themselves; online firms attract the best talent; and finally (I really love this one), eToys is "capital advantaged", while mature competitors are confined by the need quarterly profits.
Or to sum up the eToys argument: our big edge is having incompetent rivals.
Each of the above "advantages" assumes competitors -- mainly Toys 'R Us (NYSE: TOY) -- will never improve, or will take too long to do so. Presumably, by the time Toys 'R Us gets its act together, eToys will have an unassailable brand.
Maybe Lenk is right. But does "Other kids retailers suck" make a good investment thesis? Were fund managers in the audience supposed to put money into eToys because Lenk described (really) his competitors as "morons"?
To be fair, note that Lenk also discussed positives about eToys itself. The company has the same strategy as all other online retailers: speed ahead in our chosen market and use our superior scale to bring down cost and reach profitability. Each new customer currently costs eToys $33, far and away the lowest acquisition expense in the industry, Lenk says.
But earlier this week, Amazon finally talked about profit. This morning at the BofA conference, CFO Warren Jenson reiterated the same points, including the company's plan to cut operating losses to 5 percent or less by the fourth quarter of this year, compared to 20 percent in the most recent quarterly report. Amazon will not build any more U.S. distribution centers, although it will add capacity to current ones, Jenson said. 22GO>