CPNE.OB

[Goldeneyes]

From Raging Bull:

The Party Takes A Turn For the Worst- The Planet Descends

http://www.otcjournal.com/archive/listserv/20070215-1.html


The stock and the company that could do no wrong has finally given investors something to think about and come back to earth a little. If you are concerned about the news that has come out of Commerce Planet over the past couple of days, you might want to step back and think about what it all really means.

Here\'s what happened. On Tuesday after the market closed, CPNE announced it had entered into two separate but similar agreements: Agreement 1 was the sale of 1.8 million unregistered shares from existing shareholders to institutional investors at $1.90. Agreement 2 stated the company would sell 3 million newly issued restricted shares to those same institutional investors- also at $1.90.

In typical knee jerk reaction fashion, the market sold off on the news. The stock sold off to $2.70 early, rebounded to $3, and closed at $2.81 as sellers processed this new information.

Now that a day has gone by, let\'s take a step back and think about what happened. As we all know, one of the problematic issues with this stock has been the supply coming from early financiers who have virtually a zero cost basis. If some of their stock was included in the 1.8 million shares sold to the institutions, isn\'t it better for the market to have those 1.8 million shares out there with a cost of $1.90, instead of a zero cost basis? It\'s 1.8 million shares that now has a higher cost basis.

Secondly, let\'s look at the 3 million newly issued shares. If you have been around microcap fund managers and know how they think, the deal actually makes sense. I am going to take the liberty of guessing the funds involved in this financing have been buying the stock in the open market. They are already familiar with the company, and have been having difficulty accumulating the stock without moving the market up signficantly. Here\'s what they want- a position that is meaningful to their fund.

What do they do after they have accumulated their position? Go out and tell all their buddies. It will be part of their mission to make sure this stock trades more efficiently in the future. And, if they have been buying in the open market, the average cost is bound to be well above $1.90.

Also- here\'s something else the individual investor probably doesn\'t think about. If a fund engages in a non-public transaction to purchase shares, they can enter into a non-disclosure agreement with the company, and obtain non public information without violating Reg D for the purpose of evaluating the investment.



The funds are writing the check. They have looked at the company, and they can get information we can\'t. They believe they will make a lot of money from $1.90- the total investment is over $9 million. Do you think they plan to turn around and hit the market with that size tomorrow?



There was only one surprising item disclosed in the press release on the funding. CPNE stated the pricing was based on a 10% discount to the average closing bid price of the stock over the past 20 trading days. It comes out at $1.90- seems like it should be higher. That would make the 20 day average $2.09- time flies when you\'re having fun.

If this stock is going to trade to efficient levels relative to their earnings, institutions have to get involved. Several have now been given a nice incentive to spread the word. I don\'t believe CPNE needed the money- I believe they took it in return for institutional participation.

I\'m going to keep the technical side of this very simple. The stock bounced off the 38.2% retracement easily today, but is still lurking in that neighborhood. I would call it a strong buy at that level.

If the stock sells off further, it is a pound the table screaming buy at $2.42 as long as that level holds. $2.20 would be your SSL. Next Tuesday, the 22nd- CPNE will announce Q4 guidance- we\'ll see what we have then.


(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy)

[webby67]

Goldeneyes:
The OTC Journal guys who wrote that piece you mentioned made a bad mistake thinking the 3 million shares were to be issued by the company. They were sold by insiders and management and are not new shares.

They later on admitted their gaffe on their website, cited again on RB:

2/15/2007
Planet Correction- Today's Edition Inaccurate
Filed under: CPNE— OTCJournal Editor @ 7:41 am

In today's edition, I inadvertently published some incorrect information. I mistakenly read the press release to believe the company had issued 3 million new shares to institutional investors, when in fact the fund managers bought those shares from existing shareholders.

As I observed, the company didn't actually need the money. Therefore, the sale of those shares is actually better as their is no dillution. Net result is the same- the institutions have their position.

As the company grows, the cost basis for early shareholders will continue to go up. That is a logical progression.

While the facts were wrong, the interpretation was essentially unchanged. These events are a mild negative for the stock short term, positive longer term.

Comments and questions are welcome

I think we are already seeing the "mild short term negative" yesterday and today (and possibly tomorrow?).... but the positive longer term is, I hope, not too far ahead (starting perhaps on the 22nd?)

[Goldeneyes]

Thanks for the correction...I didn't knew it.

Regards

[tireslinger]

Hello everyone.
I have been running some numbers on CPNE.OB over the last few days and have decided to keep buying on any dips. This is the conclusion that I come to using the Ben Graham method. 9+(30*.7)*.28=8.40 per share. The formula is 9+(G*P)*FE. Where G=Growth rate, P=Percentage chance you think company will make earnings estimate, and FE= forward Earnings. The price of 8.40 is very conservative as you can see because I am only using .07 cents per quarter, and only figuring in a 70% chance of making those earnings. This gives us all a huge margin of error. Plenty of upside and the down side is limited. I love it!!     
The value I come up with using my spreadsheet is as follows. 4.31 per share based on earnings alone. 5.67 if I add in profitability using current ROIC, and 8.30 per share if I add in growth of 30%.  The first price is usually like a worse case scenario, the second price is usually what I use to make investment decisions and the third number is usually a fair valuation with safety built in.   

[tireslinger]

I would not mind posting my spreadsheet somewhere on the web so that others could use it and profit from it but I don't know how to do that. If anyone is interested in me doing so please let me know where to send it. It has the Ben Graham method on there as well as the Earnings valuation, ROIC valuation, and Growth valuation. Thanks. Tireslinger. 

[la-onda]

I would not mind posting my spreadsheet somewhere on the web so that others could use it and profit from it but I don't know how to do that. If anyone is interested in me doing so please let me know where to send it. It has the Ben Graham method on there as well as the Earnings valuation, ROIC valuation, and Growth valuation. Thanks. Tireslinger. 

under additional options...
please attach your sheet:
Allowed file types: txt, doc, pdf, jpg, gif, mpg, png, zip
Maximum attachment size allowed: 1500 KB, per post: 8

[tireslinger]

la onda. I didn't see .xls files on the list so maybe we will have to work it another way. Excel Spreadsheets use this extension. Thanks for your help though.

[eggman11]

la onda. I didn't see .xls files on the list so maybe we will have to work it another way. Excel Spreadsheets use this extension. Thanks for your help though.

You can zip the excel file and post it has a zip file.  Then anybody can unzip it a view it in excel.

[tireslinger]

Thanks Eggman. I had to go and download a zip utility. but here it is.

[jmccar2]

Hi folks,

This editor at the otcjournal who seems to have the longest and most correct track record on calling CPNE early had a response to a reader question that seemed to indicate a complete exit at $4-5...Any thoughts on this?

"Editor: I have heard estimates from fund managers who use valuation metrics that this stock could be $10. However, personally I am in the camp that $4 to $5 is a reasonable target- perhaps earlier than later this year. AT $4 to $5 I would offload our whole position, even though the stock might still go to $10. I believe we will see that because I have a high level of confidence in Q4 '06 and Q1 '07. I'm not sure where we go beyond there."

Thanks!

[boatguy]

 

Tireslingers spreadsheet

[Michael]

I promised sometimes ago a more comprehensive Business Model for CPNE. So here we go!

Lets first go through the assumptions:



Increase in gross connections
This is the monthly percentage increase in gross connections from February 2007. 10% is significantly lower than the historical increase but we must assume that the company cannot sustain these growth rates for ever

Subscriber average lifetime
This is based on their latest Q10:

We expense the media costs of advertising the first time the advertising takes place, except for direct-response advertising that is contracted with our advertising partners on a cost per customer acquired basis, which is capitalized and amortized over its expected period of future benefits. The capitalized costs of the advertising are amortized over the three-month period following the receipt of a trial order for our products and services.

I assume this means that the average lifetime of a new subscriber is 3 months. As this service is quite new the company might not have enough historical information to assess the lifetime. 3 months is therefore probably too conservative.

I am using the following Churn profile for new subscribers:



Gross margin
This is based on the Gross margin for the first 9-month of 2006. No changes are foreseen.

Monthly non-subscription revenue
This is based on the revenue statement for the first 9-month of 2006. No changes are foreseen. This might be a bit conservative as their other businesses seems to do quite well.

Monthly subscription
I have set this lower than the standard subscription fee of 49.95 based on Eggman's talk with Mr. Michael Hill:

I talked to the the Company (CEO Michael Hill)  and got some info........

The average subscriber subscribes to 1.5 different plans.

My Assumption is that the second subscription is cheaper than the first.

Monthly fixed cost
Based on the last 10Q with a monthly increase of 2%

Outstanding shares
As of September 2006

The assumptions is obviously critical for the forecasted P&L so please feel free to comment or suggest other assumptions. To the extent I have time I would be happy to revise the calculations with other assumptions 

So let Excel do its magic   

[Michael]

Based on the assumptions in the previous post the subscriber development looks like this:





Churn is normally defined as cancelled subscriptions over a periode divided with the average number of subscribers over the same period. Using this definition the monthly churn starts at around 30% and stabilize at 45% with the defined churn profile.

The long term profitability can therefore be condensed to two factors:

• The company's ability to reduce churn
• The company's ability to replace churned customers

[la-onda]

just awesome Mike! applaud
Oliver

[basonista]

Excellent Michael!  Applause!