Position Update: BBBB
Blackboard knows it’s finals week for me, which is why it’s sucking balls. One analyst at a firm no one has ever heard of (SunTrust) has them at nuetral because, “[We] believe there are numerous growth catalysts, yet expect only modest margin expansion owing to stepped up investments and see risks of downward revisions to ‘08 Street estimates.”
Odd, no?
They retain almost 100% of customers, and have visible revenue streams for several years out. Accounting that none of you know about says that you are NOT allowed to amortize goodwill, which means that for each quarter following their webCT acquisition, earnings were hit with charges, giving them, to a novice, a PE of 4,000.
No joke.
However, this isn’t indicative of their earnings or CF generating power, because they do have earnings, they just had to write-off all that goodwill from WebCT. WebCT was the software that community colleges in CA used to use, before BBBB bought them. They have lots of room to grow, as their service is great, in a highly fragmented industry. Still don’t know what they do? Allow me to log on, and show ye:
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As you can see, I have all my classes, my grades, announcements, and the ability to communicate with my peers. The system is easy, and it is integrated into literally every class at school. Whether a lowly Comm. major, or venerable Business major, every class you take has BBBB’s goodness. Conceptually, every college and HS in America should use this. Get announcements, slides, grades, and emails all through BBBB. God knows I could have used that in High School–BBBB is all about making life easy for the student. Miss a day? Lost the syllabus? Blackboard.
I don’t get the impression SDSU has any plans of switching, partially due to a high conversion cost of getting a NEW system. BBBB isn’t as costly a system and has much better support than the other software makers. It’s easy to use, which lessons the learning curve to schools that either adopt the technology or switch over from other software.
The biggest competition threats come from smaller companies and in a worst case scenario, GOOG. Others have mentioned the possibility of them going into this space. Don’t want to fuck with the GOOG. But, so far, that hasn’t happened yet.
I would buy BBBB right here, for a sorely needed bounce. I added last week suspecting a bounce, and see where that got me? Regardless, I am not in this stock for the short term, as I have followed the company for years, but for both a ST and LT play, I still like BBBB right here.
UPDATE (Monday 7:05pm): This was about 1 month and 27% ago…I wonder what changed since then? Though, feel free to ignore their advice since they at first put the ticker as “BEBE.”
Danny,
Check your post, acquisition goodwill has to be amortized over a period not exceeding 40yrs.
This charge is taken out of after-tax earnings, which is what you are talking about……..your post implies otherwise;
“Accounting that none of you know about says that you are NOT allowed to amortize goodwill,”
jog
Grant, you were right, the rule changed in 2001. I am right.
FASB 142: Goodwill and Other Intangible Assets
“Opinion 17 presumed that goodwill and all other intangible assets were wasting assets (that is, finite lived), and thus the amounts assigned to them should be amortized in determining net income; Opinion 17 also mandated an arbitrary ceiling of *40 years* for that amortization. This Statement does not presume that those assets are wasting assets. **Instead, goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, but without the constraint of an arbitrary ceiling.”
Boom-selecta.
Source: http://www.fasb.org/st/summary/stsum142.shtml
Good post Danny. The wife and I are also both on blackboard, and I agree, they have the college’s revenue well into the future.
What, I didn’t tell you F-ers that not only do I blog, work full time, trade ridiculously, that I’m about to pull off a second master’s degree? Yeah, my IQ is 156.
Friggin’ FASB. I’m dropping my CPA designation immediately.
I’d rather trade stocks than figure out how to account for goodwill, which is a subjective number anyway. I can read the numbers off of a financial statement and notes to financials.
Know this: some poor accountant making less than $50k / year spent time crunching the numbers in his cubicle. Probably fresh out of college.
Unsolicited advice: Danny, if you can’t get the balance sheet to “balance”, just debit (or credit) the difference to goodwill. It always works. Hopefully your future will be much brighter than the average accountant.
Who’s Daniel? And, what’s with the sub-par grades?
Fly–’Daniel’ is some guy with subpar A’s, I volunteered him to sign into BBBB for me.
alpha– GW is prorated after acquisition to assets whose FMV is above carrying value, but I like your advice anyway. I am getting a cpa but no way am I going into acct. as a desk job, then 12 yrs later I’m a partner. I have too many connections, and too much of a boner for entrepreneursmanship to settle as an acct for some firm. 1st CPA, then business.
woodshed — nice. what you studyin’?
Danny,
Very good, I stand corrected.
This will add to earnings volatility……..writedowns [impairment] of purchased assets [goodwill] could be required randomly on impairment grounds.
This amendment returns to the “original” form of Goodwill accounting before they changed previously.
Very interesting area, the differentiation between purchased Goodwill, and purchased “economic” goodwill, which this Rule change is now addressing.
jog
I don’t like stuff like this that sounds great but can be copied by every jackleg with a computer science degree.
I remember when a whole slew of these “new apps” came out during the dot com and quickly slew each other in the trenches.
What are my barriers to entry, considering that my patents are worthless and becoming worthless-er?
Jake,
Which is exactly where we are at, with regards to the valuation of the “goodwill”.
Do they constitute economic goodwill?
Or are they simply purchased goodwill? [in which case they should be amortized via the Income Statement]
jog
I don’t think you can take the stance that it’s anything other than “purchased good will” — or the dollar value of purchase price over asset value.
I never liked the “write it off when you feel like it” change, either.
Goodwill is for people who don’t know how to negotiate properly.
Jake,
Not sure I agree, when completing an analysis I would always adjust for goodwill, thus, the change, makes no difference to my style of analysis.
Some goodwill is without a doubt worthless, and should be written down……however, some goodwill has a definite economic value, and should be accorded value within the analysis.
I may have a look at this stock BBBB if I have time.
jog
Scarlet Poltroon…………..
I agree.
This is a definite concern, I can see that I need to revisit this entire concept. When the Fish Tank Advisory is on the same page, red flags are raised.
jog
jake, they are a real company and the concern you raised is the only one–they are in a near monopoly.
ducati–…what?
Danny,
What…..to “what?”
jog
Boone- management
ducati– I missed your followup post. Some GW is worthless, I was pointing out why their earnings were so fucked mores so than commenting of whether the purchase of webCT was a good one, though that is totally important in considering hte stock.
I would be interested in your take after you de-align yourself from SP’s twisted views
Funny thing is, I’m getting into this whole ‘non-directional arbitrage’ game. Good times. Intrinsic value of this blog is between $0.04 – $0.09.
Bottle.
Viz.
To the man.
Mdawsz, what is your strategy for the arb stuff, if you don’t mind me asking….