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gnulaw (51.61)

Shareholders vote with their $. Geeknet (LNUX) Downgraded, Shares Sink Further Below Liquidation Value.

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November 05, 2009 – Comments (3) | RELATED TICKERS: BBY , GKNT , IBM

Geeknet was downgraded by Merriman today while LNUX shares close down on ~4X ADV ignominiously trading below liquidation value on Q3 news...What was Q3 news and what did Scott Kauffman slip through his cacophony of press releases surrounding Geeknet's continuing shareholder value destruction?

"...The 3rd quarter looked like the 2nd quarter in many ways. eCommerce continues to perform well while media revenue continues to dissapoint...3rd quarter 2009 revenue came in at 10.8 million. Our net loss on a GAAP basis was $4.5 million or $.08 per share...Media revenue for the 3rd quarter was 3.7 million, a decrease of 27% over the $5.1 million for the same period last year. The decrease was a result of a decrease of a 58% decrease in traditional display advertising revenue and a 35% decrease  in ad network revenue year over year..." source: Patty Murray, Geeknet CFO, 2:15 into the q3 FInancial results Conference Call .

Q: What should happen?

A: Clean house and fire Scott Kauffman, Patty Morris, Mike Rudolph, Chris Dobbrow, and Jay Seirmarco (.)...however, while Scott Kauffman was relying on buzzwords to get him through the conference call this is what he was filing and conspicuously avoided covering during the conference call... 

Bonus Metrics for the Fourth Quarter of the Company's 2009 Calendar Year

The Compensation Committee (Howe, Present, Wright) approved the following metrics for determining bonuses payable in connection with the Company's performance during the fourth quarter of its 2009 calendar year:

For Corporate Executives, the corporate strategic objectives will be forty percent (40%) based on the online media business meeting its quarterly revenue target, forty percent (40%) based on the e-commerce business meeting its quarterly revenue target and twenty percent (20%) based on the Company meeting its quarterly adjusted EBITDA target. If the Company attains between 70% and 150% of its quarterly media revenue target, its quarterly e-commerce revenue target or its quarterly adjusted EBITDA target, then the percentage attainment of the applicable quarterly targets for which the Company met such threshold shall be multiplied by each Corporate Executive's potential quarterly bonus with respect to the applicable target (i.e., pro rata payout). If the Company fails to reach 70% of its quarterly media revenue target, quarterly e-commerce revenue target or quarterly adjusted EBITDA target, then there shall be no quarterly bonus payout associated with the targets for which the Company did not meet such threshold made to any Corporate Executive (i.e., 0% payout). If the Company attains more than 150% of any applicable quarterly target, then the bonus payout amount shall be 150% of the potential quarterly bonus with respect to the applicable target (i.e., payout capped at 150%).  Source: SEC FORM 8-K filed Nov-4-2009.

 So...the non-insider shareholders bonus is dependent upon bottomline net earnings while insiders' bonuses are merely dependent upon top-line gross revenues, and worse, on ThinkGeek revenues (vs. online media revenues)...All previous quarters...years, all from Ali Jenab to Scott Kauffman, the focus during their quarterly conference calls was SourceForge.net and the online media business, and, in passing, almost embarrased to even mention them, were ThinkGeek's numbers. Now, as ThinkGeek represents Scott Kauffman's only hope for tenure Kauffman and Morris are suddenly Geek's...and geek's more interested in insider shareholder value creation than non-insider shareholder value creation... 

Next item. "...Renaming the company Geeknet is the latest step in our rapid transformation,” said Scott L.  Kauffman, President & CEO of Geeknet. “Our new name is a more accurate articulation of our business. With Geeknet as our calling card on Madison Avenue, we are now able to clearly define the audience we serve and more effectively capture the business opportunity that we are addressing....Kauffman continued, “The geek demographic is bigger than most people realize, and it is growing every day in both scope and influence. Its product appeal extends beyond servers and slide rules to include video games, soft drinks, automobiles, fast food, fashion, entertainment, consumer electronics and other goods. We call this phenomenon the ‘geekification’ of the world, and we believe that our network provides the best platform for advertisers to reach this highly coveted audience.”  Source: Geeknet, November 4, 2009 

The glaringly obvious stock symbol should accordingly now be (NASDAQ:G33K). Unfortunately, "...the Company's common stock continues to trade on the NASDAQ Global Market under the symbol "LNUX" and has been assigned the new CUSIP number 36846Q 104...". Source: November 4 SEC Form 8-K.  That said, Kauffman still doesn't really get the g33k demographic.

Caroline Offutt, Timmy, and the incredible team at ThinkGeek...to you! Namaste! 
 

3 Comments – Post Your Own

#1) On November 06, 2009 at 10:47 AM, gnulaw (51.61) wrote:

[CORRECTION]

 >>source: Patty Murray, Geeknet CFO should be Patty Morris.

I also should be commending the Ohloh resources, Scott Collison and Jason Allen.  They are equally key to LNUX's shareholder value maximization. It is promising to see they were not part of the 18 employees let go ref/ http://caps.fool.com/Blogs/ViewPost.aspx?bpid=288006&t=01005232244381733972

It appears SourceForge.net is on cruise control in the hands of Jason and Scott.

 

ThinkGeek/Geeknet should now be concentrating on:

1. strategic acquisitions e.g. jinx.com, and any relevant web 2.0's ref/ http://www.go2web20.net/

2. expand their proprietary products e.g. Tauntaun sleeping bag* and Interactive T-shirts** into Walmart, Costco, et al... 

 

*  http://www.thinkgeek.com/geektoys/plush/bb2e/

** http://www.thinkgeek.com/tshirts-apparel/interactive/

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#2) On November 06, 2009 at 4:38 PM, gnulaw (51.61) wrote:

[If] this article is correct and [if] this management team actually understands why they changed their name to geeknet more than simply hanging on buzzwords this company may just pull off establishing a substantial, worldwide, and loyal shareholder base while creating substantial shareholder value.

The positives are Collison and Allen are still with the Company, which hopefully means Kauffman understands their worth. He recognizes ThinkGeek's significance to LNUX shareholder value and moved Offutt up the list on the Company management website to 2nd from near last on the previous website only days ago. We need to see what I said above re: merchandising ThinkGeek to WalMart, et al, making some key strategic acquisitions, in addition to bringing in a merchandising genius from Best Buy, Amazon, or Walmart and begin to build a real Company.

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#3) On November 07, 2009 at 7:48 AM, gnulaw (51.61) wrote:

Re: Insider bonuses

>>the non-insider shareholders bonus is dependent upon bottomline net earnings --> (as they should be).

>> If the Company attains between 70% and 150% of its quarterly media revenue target, its quarterly e-commerce revenue target [or] its quarterly adjusted EBITDA target

"or" is the operative word here...i.e. insiders can pin their bonus to ThinkGeek's revenues when only Caroline Offutt should be provided this provision. The other management team have consistently failed in meeting revenue and earnings targets and should not benefit from ThinkGeek's management team.

...this smacks of Kauffman, Morris and the Board of Directors (Suzanne Present et al) groping for ways to increase insider shareholder value as this management team has consistently failed in creating shareholder value through share price appreciation pursuant to simply superior management...So they resort to financial legerdemain.  Unacceptable.

 

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