Baoxiaodao

I guess nothing is forever. Even Visa and MasterCard will get screwed if they do not change - fast. Amex Buying Broader Fraud Management Technology American Banker | Monday, November 8, 2010 By Sean Sposito Print Email Reprints Feedback American Express Co. says it hopes to improve its appeal among online merchants by adding fraud management to cover any payment type — not just its own. Merchants want a fraud management system capable of covering all payment types they accept, rather than a separate one for each payment network, Amex said on Thursday. The New York company plans to address this need by purchasing Accertify Inc., a three-year-old fraud management company with technology that works across all major card brands as well as alternative payment systems such as PayPal Inc., a unit of eBay Inc. Merchants "don't want a single fraud prevention service for a single payment type," Bill Glenn, the president of Amex's global merchant services business, said in an interview. Accertify's abilities should hold particular appeal for merchants that want to expand online, he said. "Merchants want more and more e-commerce," Glenn said, "and more tools to prevent fraud." Accertify has about 70 clients, including Southwest Airlines Co., Jet Blue Corp., Delta Air Lines Inc., Urban Outfitters Inc., Barnes & Noble Inc. and 1-800-Flowers.com Inc. Amex agreed to pay $150 million for the Itasca, Ill., company. It expects the deal to close this year. Analysts said the purchase could be particularly helpful for Amex's travel clients. "It's a good step for them to have," said George Tubin, a senior research director at TowerGroup in Needham, Mass. "You are building in the ability to scrutinize tickets. [Accertify's] software does that and a couple of other things, including geo-location and transaction" services. Jacob Jegher, a senior analyst in Celent's banking group, said Amex already does electronic verification, enhanced authorization and charge verification for its clients. And "I think it's a pretty straightforward opportunity, trying to understand the exponential fraud in e-commerce," he said. Amex has "all kinds of merchant services," Jegher said, and "this is yet another one they can offer. There is a definite need in the industry." Avivah Litan, a vice president and distinguished analyst at the Stamford, Conn., market research company Gartner Inc., said the deal addresses an urgent need Amex has to keep up with mobile payment and alternative payment providers. "They are very threatened by mobile payments and alternative payments," she said. Visa Inc. has similarly tried to leap ahead in mobile payments with its July acquisition of CyberSource Corp. MasterCard Inc. followed suit in October with its purchase of DataCash Group PLC. Amex also owns the online card processor Revolution Money, though analysts say it has not yet tapped the full potential of that purchase. "It's kind of like a mad dash to the races, but this really, frankly, isn't enough to help them," Litan said of the Accertify deal. "The only way they are going to woo merchants away from alternative payments is to lower their interchange fees." Jeff Liesendahl, Accertify's chief executive, said his company does not expect any substantial reorganization once the deal closes. "We plan on staying in business — we plan on growing," he said. "Being partnered with somebody who you trust, who you can grow the business with, I think that's the whole package. That's where we could go with American Express. The fact that they get it." Liesendahl said he will continue heading Accertify and will report directly to Glenn. There will also be no layoffs of Accertify's roughly 100 employees, an Amex spokeswoman said.

I think Amazon made a bad precedent on Zappos and I did not expect Amazon being so naive to believe they can buy every problem out. It is like paying for the blackmail and expect nobody will try it again. It is this expectation that Amazon will pay leads to even more ventures in the future. We will see. As I said, AMZN is not worth the multiples trading at now.

Josh, very good call, thanks. As an equity only investor, sometimes I wanted to do this kind of special situation. However, if I put let's say 5% of my money in there, I could lose them all; if I put less than 1%(an amount I am comfortable with), assuming I make a double, the gain is still not that significant. So you see I am kind of in a dilema. I understand I need to find a lot of those kind of situations in order to make the risks justified, but how many situations you can find in a year like this? Can you please share your thoughts here? I am not talking about risk-arbitrage here, it is totally different.

It seems to me those derivatives have turned pretty much everyone with a high IQ into gamblers.

One of the most informative posts. Thank you!

Very respectful company. Thank you very much to bring it up here. We would be a lot better off if we can have more of those businesses and less financial middleman - and less lies.

Hi Doc75, Thanks for the idea. I like the numbers here but was just curious why the management has not bought any meaningful amount of shares on the open market. Insider buying is an absolute must before I pull the trigger. And also you said the company is trading below its intrinsic value. Can you share a little about this? Thanks in advance. Fan

Congrats! This year has been tough for all of us. 100%+ is everything to speak of. Keep it going! Fan

One of the best posts here. Thank you !

Packer, you are more than right on the subsidy issue. If you read things happening in EU in the solar sector, you will get even more frightened. In Spain, many people investing in solar assuming the subsidy is a type of government guarantee and they invested heavily into it. However, when the government finance was restrained, the subsidy was pulled out and many will go bankrupt. Also, Germany is planning to do the same thing(or already did). If it can happen in EU, it can happen anywhere in the world. I am not opposing investing in the solar sector, but in doing so we have to take great caution. The cyclical nature of this industry is very obvious and the cycle is very short. Adding to this agony is the government policies towards the industry. Generally I call the 'green effort' window-dressing. In some countries, it has more to do with politics than economics. It is like a fashion trend: if you do not follow, you will be the freak out there.

Thanks a lot for the info. I was planning to start buying things in Australia, so this is a good heads up!

I apologize I broke my promise here :D. This will be the last post for sure!! One of the founders just bought another 20k share at 46@, which is 920K euros. A friend asked about competition, moat and so on, so I will put a note in detail here to explain my thoughts on the situation. Here it goes: "For a e-Trailer, the ultimate indication of a strength of business is the improvement of revenue and margin at the same time. Just like companies with high fixed cost structure, Delti gains better margins every time it sells one more tire on the Internet. Its website is highly automated and my guess is that 98-99% of the time you never have to contact a CSR. So as sales increase, EBIT margin widens. But things get really strange here. I have researched several other big e-Trailers like OS and AMZN, Newegg. Traditional wisdom must suggest as a company doing business on the Internet, especially when it is a dominant player, it will increase its margins as sales expand. But it just did not happen. My theory is that as the sales grows, the competition also grows, and therefore the gains from economics of scale were subsidized to the consumers. Otherwise, competitors would not be shy to lower the price to get the business. The sad truth is, if you price is 10% lower on products like games, toys, books, you are going to get almost all the business. Zero stickiness. Delti is an anomaly in the e-Trailer world. It has increased margin and sales at the same time for 10 years in a row and there seems to be no limit in sight for them to increase operating margin when revenue is increasing at 20% per year. It is nothing short of a miracle, just like BYD. If you read the AR, there are tons of reasons to justify it. But ultimately, after spending so much time thinking about it, it is the management who made this possible. And we both know people matter most in investing. These two guys were friends when they worked for a company which manufactures tires. They wanted to give it a try and opened their shop on the Internet. That was 2000. In year one, the company had revenue of 1.5 million and was profitable. From I can recall, the company only did one round of financing and one IPO and that is all. Earnings increase every year and they paid out 100% of the earnings as dividends(not sure about early years). Almost zero options and very very modest pay. This year, they probably will have revenue of 400mm and EBIT of 40mm. They do not do expensive TV campaigns and use only use Google search engines. They only way to explain the revenue growth is that Delti really offers way way cheaper tires than its competitors. For example, Tireseasy(delti NA site) has really no recognition from consumers compared to Tirerack, but it grows at 30% per year anyways. As Delti grows and gained International footprint and economics of scale, it is very hard for anyone to compete with them. Let's say we invest 10 million today and we imitate everything Delti does in NA today to start a new website called Jim&Fantires.com. There are several hurdles to clear. First, we have to do a lot of advertising to gain a footage in the market. But it is hard. We may sell some tires at promotion prices, but people on the Internet has zero tolerance of high price. So we need to subsidize a lot to attract the traffic. Second, we got a product selection problems. Because we are a startup, we need a lot of money to build own inventories. But it is hard as well. We have no credit history, no visibility and only can stock a limited type of tires. And again, we are so hard a sell because we have no way to buy tires cheaper than Delti(they buy in bulk, I mean really bulky!). Third, we know from day one that there is a competitor offers 25000 types different tires and we all know those tires which are hardest to find are the most profitable. What we gonna do with it? If we have 100mm, yes, we can stock all of them up. But do we know which one actually sells? It takes many years of experience and data collection to understand the consumer patterns. Finally, we have got a huge problem competing with an International company. Why? Let's say we have this same term with suppliers, very good recognition and large selection now, but Delti can simply kill us by lowering the price here in NA, and use profits from EU to subsidize the operation in NA. As you can see, it is a lot harder nowadays to start a business on the Internet with big players already in place. In academic world, they call it winners-take-all effect. That leaves a possibility that incumbents like Walmart or AMZN will step in and compete with Delti. The thing is that....... there are many many companies like Walmart, Costco, Canadian Tire and AMZN doing that, for a very long time. And they cannot compete effectively with Delti on the Internet. The problem for a e-Trailer selling tires is that you have to be very specialized in selling them. The warehouse, the distribution channel, the customer service system and purchasing patterns, those things are all very different compared to the existing infrastructure a company like AMZN has. If AMZN sells a game for 50 dollars, its cut is probably 8-10 dollars. A laptop? Probably 100 dollars. But a tire, bulky, expensive, hard to store and totally incompatible with existing system, will get them 20 bucks at best. So why bother(Amazon has a token exposure to tires on its website)? At this point, it really raises the question if the management of Delti deliberately prepared the company for the International expansion from day one. I doubt it, but it is possible. Delti makes money even in a country like Finland(5 million people) while AMZN has to stick to a large market like Germany to worth its while. You might wonder a company like AMZN will ever try to compete with Delti on this business. Jim, I did my bachelor thesis on Web 2.0 so I guess I have a little say here, not much though :P. Doing business on the Internet, is easy. But start a new business and compete with existing ones like Delti, the challenge is insurmountable. For e-Trailers, prices and product availability are two most important things to woo customers. Once a player gained economies of scale, it takes many many years and many many millions to catch up, and there is actually a very little chance you can surpass the forerunner. Look at all the established companies on the Internet around the world. Since the dotcom bubble, how many meaningful new names have actually appeared? Back to your question. What I meant is that when the company grows bigger and revenue increases, its intrinsic value increases at a faster pace. And I want to repeat here, when looking at an Internet company, it is only meaningful when you look at both operating margin and revenue growth at the same time then you have a full view of the company. I guess you are so used to evaluate companies on cash flow and earnings and NAVs. But Internet companies have their values in two parts. The first part is operation value, which derives from the earnings and cash flows; the other part is 'real estate' value, which has everything to do with the company's presence on the Internet. Just like a domain, myfavoritefood.com which has value, Delti.com and its 100+ websites which has 4 million customer has its value as well. It is just as real as a 'brick and mortar' building. Delti is by far the largest online seller of tires and this gap has been widening every second. Other players are small and none of them are wired in a way to do business internationally. I would not say no one can ever compete with Delti, but it is hard, after Delti has spent 10 whole years in this area. It is like someone spent 10 years practicing piano, and there is a guy wants to catch up in just a few years. It is possible, but the odd is not very good. Some of the local shops like tirerack would still be around and compete with Delti, and many more will come. But they were set up differently from the start. If those small shops cannot even compete with Delti locally, how could they possibly compete with Delti around the world? I really doubt anyone in his or her right mind would want to get into this business with a very uncertain future. It is not like investing in a steel mill. You have the very best equipment and you can be competitive. This is simply not the rule on the Internet. Thinking about the easy entry of competitors would compare oranges to apples, meaningless and confusing. I hope my lengthy comments will help." Best, Fan

I was wondering what are the spreads they charge on FX. Normally anything offered by the banks are very expensive. Use IB!

Some people on this board tend to do just that. Take it easy Rick. Not everyone in this world will read 5-year annual reports twice before shot questions. It is part of life. Keep it going. Your effort will not go unnoticed. I like your ideas! Fan

For the first time in my Delti series, I recommend a sale if price keeps going up although personally I will not do it. For those of you who bought it the first time I mentioned it at 29, it has been a tremendous run. However, it seems to me the relentless upward movement of the stock price has implications on future upside. Unless there are big improvement of operations we do not know, the stock price is starting to deviate from fundamentals. As a non-german, I really have no idea how the sentiment for Delti shares in the last couple of months. But it seems to me a lot of market participants have reached the common conclusion that Delti is a growth stock and deserves a high multiple. Sometimes it is really easy to buy(best return is always from those stocks you spend only 5 mins to make the decision), and hard to sell. Good luck to all who bought this remarkable company. At current price, it is your judgement matters, not my recommendations. And thus this is the last post for Delti unless something significant happens. Fan

Co-Founder just bought another half a million euros of shares in the open market. I am just curious why he wants buy the shares at today's price. It is now trading at 25x last year's P/E and it is not clear whether the company can grow significantly in the near term. I think at this price, reasonable value investors should be selling. But I also remember that to maximize gains over the long term, you should be willing to hold onto it for a long term. I bought the shares at the very bottom and I'd like to ride it to the very end. It is a bit of conviction, but I like my chance.

In some sense I feel like I am a treasure hunter, searching the whole world for those extraordinary businesses, buy them, and wait for the market to recognize it. That is why I love this game so much. If you bought Stratec in 2003, you would have made 50 times of your money in one of the worst holding period for stocks. And I forgot to mention, those are almost all(98%) organic growth. I guess the prefix Bio would inevitably lead to an unfavorable impression of this company. Yes, most money spent on drug research, just like drilling holes on the ground, has vaporized in the thin air. But those who sell shovels to the gold rushers, cable connectors and underground rail systems for the mine have made decent or excellent returns on their investment. Stratec is such a company selling shovels in the Bio industry focusing on testing and diagnostics. Its flagship product is its analyzers for laboratory uses and has a installed base of 8000 worldwide. Unlike many manufacturers which sell the machines directly, Stratec(SBS) signs long term contract with majors to develop analyzers as a part of the product offerings for hospitals or testing centers. That makes its revenue highly predictable. In addition, it avoids competitions VS those big marketers but does enjoy a unspectacular margin because of this business strategy. As usual, I encourage everyone to read the annual reports to get a full picture of the company, since I am really a bad narrator of any specifics. So what is special about this company? After, It is trading at 20-24x estimated this year's earnings and have only 14m cash on its balance sheet. If there is anything wrong you might lose your shirts or even your pants. However, I do believe there is still money to be made(I am late on this one as well), and it will still reach my 20% hurdle without much difficulties. The margin will expand meaningfully in the next few years. There are several things happening at the same time. First, SBS has a much stronger position in the market now and it naturally leads to better margins. Second, the production facilities are to be expanded due to pent-up demand. Scale of economics will lead to better margins. Third, the recurring revenue from the installed analyzers(8000 worldwide) will be a bigger part of total revenue and increase margin accordingly. Fourth, employee growth will always lag behind revenue growth(this has been the case in the last decade). Finally, the management is simply on of the best in the field. Revenue will grow at a 15%+ in the next few years. I normally read management's guidance with a grain of salt, but I paid attention to this one. Upon signing the agreement with a partner, the contract could lead to 20 years of cooperation between the companies. According to SBS, it normally spends 3-4 years to develop a specific device for a partner, and it takes more than a decade for a partner to actively market it. So any contracts signed today will have meaningful impact on future earnings. And because the contract give a floor on the annual orders, the management has a very high confidence in projecting future revenues. Looking back on the contracts signed in the last few years, those devices designed are just being marketed and the revenues will flow in at an increasing speed. (One of the reasons I dislike to invest in North America is that people are milking shareholders relentlessly. If things are going really bad, they can just walk away; if things going well, they reprice the options and win huge(thank you very much, management of Aberdeen International). In SBS, you see very minimum dilution from stock plan for the employees. The compensation is reasonable. So if the company has any upside, shareholders will almost get it for sure.) The company should not be standing alone. In my opinion, SBS should have been acquired a long time ago. Part of the reason it did not get acquired is its high stock price. According to management, the company is spending 25% of revenues on R&D but 8% of revenues on R&D will be sufficient to sustain the current operation. Chairman is 65 years old(owns 41 percent of the company) and should he want to cash out, any PE firms will consider a serious bid for the company(but high quality companies normally do not want to sell to PE shops). My guess is that the company will not sell itself to any majors, for example Siemens, since it is doing business with a lot of companies competing fiercely with each other. But I would argue the value of SBS on the private market should be much higher than the current market cap. Feel free to post after this thread. If I have any more thoughts, I would put it here. Fan

I only learned to check insider dealing in Germany a moment ago. https://www.unternehmensregister.de/ureg/result.html;jsessionid=607331DC3C6A0F96F1128BFEE471DD57.www03-1 Delti insiders have been buying millions of euros worth stocks at 36-40 range. It just does not make sense for me since they can just buy back shares to increase their percentage of holdings. Anyways, it is always good to have insiders by your sides.

Delti's second quarter report is out and I encourage everyone to read it. The international business, especially in the US, grew 43% to 35 million Euros. If you look at the IPO of Ocoda(which is a Internet-based supermarket in UK, highly unprofitable), hopefully the spelling is right, you'd be wondering why the management has not spun off the US business and make a quick 150-200mm profit! This stock went up a lot in the last few months and it is fairly-valued, in my opinion. However, I am still amazed by the fact the management has grown this business with only 100 people in such a significant way. This is nothing short of the miracle of BYD or other comparables. I am committed to surf the wave for a few more years as good things tend to happen to the good companies. Thoughts on being acquired by other company like AMZN Now I really doubt Delti will ever be acquired by another company like AMZN since those two doing businesses in a remarkably different way. Delti never intended to build an empire, nor did they want to crush their competitors by pure size(economics of scale). That is why they are profitable since inception. They just focused on their operations and let sales grow. AMZN secured the market earlier with massive subsidies to the consumers. Now AMZN built a huge infrastructure and it is almost impossible to downsize it. With 28K plus people, and the associated costs of pension, benefits, how is that possible to get margin expansion? I am having a hard time to imagine how companies like AMZN being able to compete with companies like Delti in a niche market. But if AMZN absorbs Delti, how is the management of AMZN going to integrate Delti into the operations? Thoughts of Delti's intrinsic value I always believe any online business has 2 parts of value, the operational value and "real estate" value. It is easy to put an multiple on the cash flows but it is very difficult to quantify the value of the site itself. It is very true that Delti is barely known to any consumers worldwide, but their sub-websites in around 100 countries do have recognition among the consumers. Just like a commercial property where you can sell stuff like clothing, food or fragrance, a company can sell almost unlimited possibilities on its websites as long as the website is known and trusted by the customers. With around 4m in customer base and 100+ websites worldwide, Delti will start new initiatives sooner or later to leverage that huge customer base. And whatever the management decides to do, it will be a huge success at the very start(please forgive my blind confidence in the management!). In a online business, the intrinsic value of the business is a function of profitability and size(customer base, revenue and so on). Delti is now a formidable force in the industry and the competitive position improved dramatically over the last few years. In my opinion, those values have not realized in Delti's stock price, yet.

Excellent read. I recommend everybody read it. This is the kind of company I have been looking for all the years. Again, thanks for sharing!

WoW, lots of good points. The only thing I want to add is that Visa is being followed by an army...... and a 60B plus company. So the chances are that market is efficient on this one.

2nd quarter result is out. And the growth slowed down significantly. If revenue for the second half does not increase at all and the margin stays at 9% as the management predicts, Delti will earn 2.06 per share for the year. I estimate that Delti will have approximately 4/share in cash at the end of year, so current price implies a 16 x PE. I still think Delti is a very good investment going forward, especially when I read about Munger's comments on BYD. Those guys have demonstrated again and again that they are excellent innovator and operator. The track record just speaks for itself. Hanover, 20 July 2010 – Delticom AG (German Securities Code (WKN) 514680, ISIN DE0005146807, ticker symbol DEX), Europe’s leading Internet tyre retailer, recorded revenues totalling EUR 177 million in the first six months of fiscal year 2010 – according to preliminary figures. This corresponds to an increase of 27% compared with the prior-year period (EUR 139.2 million). EBIT improved in the reporting period by 62% to EUR 16.5 million (H1’09: EUR 10.2 million), an EBIT margin of 9.3% (H1’09: 7.3%). Delticom recorded in the second quarter revenues of about EUR 102 million (Q2’09: EUR 88.1 million, up 16%), following revenues of EUR 74.5 million in the first quarter (Q1’09: EUR 51.0 million, up 45.9%). Due to persistent snowy weather conditions at the beginning of the year and the early start into the summer tyre season in March sales in Q1 were higher than anticipated. Despite the somewhat cooler weather during the second quarter revenues were still in line with expectations. Delticom AG will publish its full financial statements for the first six months on 10 August 2010. The report can be downloaded from the website www.delti.com within the "Investor Relations" area.

Surprisingly, I agree. :-\ There are a few gems. I like the one when he says that all returns are made in bull markets. (most people don't live in Premville). His point is that people should find a bull market somewhere else when every thing is rolling over on them. He mentioned Australia's still booming from 07 - 09 with the continued high demand for ore as most other markets worldwide were turning down. I agree. Check out Sri Lanka's stock market. How many of us actually noticed that the civil war has ended? How many of us know that Sri Lanka is actually a semi-developed country? If you were aware of that, you'd have made 100% in one of the worst financial crisis without any risk. Nothing is impossible. Thanks. How's the market in Sri Lanka now? Any bargains left? I did not look into it since I got so much stuff on hand. And, it is a hassle to trade in a remote market.

Surprisingly, I agree. :-\ There are a few gems. I like the one when he says that all returns are made in bull markets. (most people don't live in Premville). His point is that people should find a bull market somewhere else when every thing is rolling over on them. He mentioned Australia's still booming from 07 - 09 with the continued high demand for ore as most other markets worldwide were turning down. I agree. Check out Sri Lanka's stock market. How many of us actually noticed that the civil war has ended? How many of us know that Sri Lanka is actually a semi-developed country? If you were aware of that, you'd have made 100% in one of the worst financial crisis without any risk. Nothing is impossible.

Delti just updated its EBIT margin target this year from 8% to 9%. The news release: Hanover, 28 June 2010 - Delticom AG (German Securities Code 514680, ISIN DE0005146807, stock market symbol DEX), Europe's leading Internet tyre retailer, has increased its revenues and earnings significantly in the first six months of 2010. Although Delticom might have to face headwind from a weakening consumer climate and negative base effects in the upcoming quarters, the Management Board is now confident to achieve a profitability higher than initially expected for the full year. Assuming continued positive business developments, the new 2010 target for the EBIT margin is 9% (previously: 8%). The Management leaves its outlook for 2010 sales growth unchanged; Group revenues are expected to increase by more than 10% year-on-year. Delticom AG will publish preliminary revenues and earnings for the first half year of 2010 on July 20, 2010. The fully semi annual report will be released on August 10. If anyone follows the e-Trailers closely, he or she will know how hard that is for any company in this business to increase sales and margins at the same time. I personally do not understand why analysts in this sector put so much emphasis on the sales alone. In this business, if you decrease the price by 5%, you volume can just double or triple cuz it is so easy for people on the internet to switch. It is the combination of sales and margins that matters. Delti has improved revenue and margins consistently. Not one year or three years. It has a track record of ten years of consistently increasing revenue and EBIT margin in a brutal business. In my opinion, it is just amazing. The moat is getting just wider and wider as the company grows. I am happy to be a part of this story and I hope someone shares my feelings as well! Have a good holiday!