VistaPrint Limited (NASDAQ:VPRT)

CAPS Rating: 2 out of 5

The Company is an online supplier of quality graphic design services and customized printed products to small businesses and consumers worldwide.

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13
Player Avatar bfaulkner87 (< 20) Submitted: 11/16/2009 9:56:42 PM : Underperform Start Price: $55.05 VPRT Score: +93.90

Vistaprint (VPRT). Currently trading at about 40x p/e, which, despite the fact that the company is growing its top line quite well, is not going to produce a meaningful return for long-term investors. What's interesting is when you actually take a look at those earnings the price becomes even more ridiculous.First, and not too pressing an issue is the fact that their tax rate is roughly 8%. The tax rate for corporations in the United States is 35%. It’s based in Netherlands but does the majority (~60%) of their business in the US. If the Obama administration proposes any material crackdown on corporate tax evasion it seems these guys would facing a much higher tax rate.The second, and much more concerning element of their earnings comes from 'referral fees.' When you order from vistaprint.com after you fill out your credit card info there is a display button that says, "save $10." If you click on the link your credit card info is automatically sent to a third party, Vertue Inc. and you’re charged $14.95 every month without notice or receipt. They address this on their latest 10-Q saying they derive a portion of their revenue from third party referrals to the amount of $5.1 and $7m in Q3 of 2009 and 2008, respectively. They follow it by saying that in the future they expect the referral revenue to “decrease nominally, perhaps to zero.” http://moneycentral.msn.com/investor/sec/filing.asp?Symbol=VPRT Vistaprint downplays the referral revenue’s significance by comparing it to their revenue, not their net income. In the latest quarter this amounts to 3.5% of revenue and they predict that it will account for between 2-4% of revenue going forward (assuming there's no legislation banning this practice). However, there is no cost associated with these referral fees and they flow down to the bottom line unaltered. So in the latest quarter on a net income of $12.9m about $5m of that comes from these referral fees. The insubstantial 3.5% of revenue is a whopping 36% of pretax income....and that's just in this quarter. Over the last 12 months Vistaprint has generated $25.2m in referral fees compared to $61.1m in pretax earnings. That’s 41.2% of their annual pre tax earnings. For the fiscal year ending the same date in 2008 their referral fees were $27.6m on pretax earnings of $44.1m or an incredible 62.5%.There have been thousands of claims against Vistaprint and the company doing the referral business, Vertue Inc. Jay Rockerfeller, Chairman of the Senate Commerce Committee, is putting the heat on the latter company to come clean about its shady practices http://commerce.senate.gov/public/_files/52709GaryJohnsonVertrueLetter0.pdf . Additionally, as of November 6, 2009, Senator Rockefeller requested the same information from Vistaprint itself. The committee is set to have a hearing on November 17th on the issue, which could serve as a catalyst. http://commerce.senate.gov/public/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=1c0794dc-94a7-4527-9ebe-6b2b2d5a8c59&Month=11&Year=2009 The first “sample letter” link after the press release is directed specifically to Vistaprint.If you eliminate these referral fees, which are at best poor business practices and at worst, illegal, and apply a reasonable tax rate given that 60% of their business is done in the U.S. their legitimate earnings are about $22.5m on a company with a current market value of $2.3 billion. So the lofty 40x earnings actually becomes about 100x earnings less referral revenue at a 35% tax rate.To make things even more interesting their CEO, Robert Keane, has sold off 88.7% of his stake in the company over the last 12 months two of the largest sales--87,800 between 5/22/09 and 6/1/09, and 44,500 on 11/5/09--coming within 1 week of the letters from the Commerce Committee to Vertue 5/29/09 and Vistaprint 11/6/09. http://quote.morningstar.com/insider-trading/Insider-Activity.aspx?t=VPRTKeane seems like a savvy businessman. He grew his business from 6m in sales in 2001 to 520m in sales in 2009. I’d follow his lead and sell VPRT common at anything above a 20x non-referral, fairly taxed earning power, or roughly $12/share. At $54 there is significant downside potential. This is all, of course, assuming the government doesn’t impose a fine upon Vistaprint as they did ValueClick for similar practices last year to the amount of 2.9m (and they didn’t even forward credit card info!). In which case Vistaprint might have further to fall.http://www.ftc.gov/opa/2008/03/vc.shtm

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Member Avatar chicagolonghorn (< 20) Submitted: 11/19/2009 1:09:25 AM
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Spot on. I'm very bearish on VPRT.

Member Avatar iddqkfyou (< 20) Submitted: 1/29/2010 5:49:38 AM
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Nice job!!!

Member Avatar charleyde1 (< 20) Submitted: 5/18/2010 3:58:56 PM
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Great analysis if issues --- pro & con. Thanks!

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