Universal Travel Group’s cash balances: is there any way of testing whether the $43 million is really there?

In the last few days more than half of the float of Universal Travel Group has turned over.  It is clear that the company has made some misleading claims about their website.  Some claims are easily falsifiable - in particular the claim (made by press release) that the website offers comprehensive and timely travel information and services, including guaranteed low prices, high visual appeal, map support technology and easy payment functions.

Still – and despite this – people have purchased the stock on mass – perhaps lured by the low single digit stated price to earnings ratio – perhaps lured by the large ($43 million stated) cash balance.  These are of course the same lure.  If the earnings are not there the cash balances they generated are unlikely to be there (and visa-versa).  And if the cash balance is there my short position in the stock is wrong.

So I needed a test of either the earnings or the cash balance.  If I could falsify one then any case for owning this stock would evaporate.

I was criticized in the comments for not approaching management with my concerns – so I have asked management (by email) if they have an innocent explanation for what follows.  They have not replied.

Interest earned (or the lack thereof)

Cash interest rates in China are between two and three percent.  China does not have a zero interest rate policy. [See the amendment at the end of this article for further clarification.]

The company ended the March quarter with a stated cash balance of $37.833 million. 

It ended the June quarter with a stated balance of $43.591 million. 

It is reasonable to guess an average cash balance of $40 million. 

At 2 percent interest yield (a lower bound) the company would be earning $800 thousand per year – or $200 thousand per quarter on that cash.

It reported interest earnings of $17,081. 

No, I am not forgetting a zero.  The company is reporting less than ten percent of what is a reasonable lower-bound for interest earnings on its cash balance.  [It is less than half the interest that would be received using the lowest rate we can find in the official guideline deposit rates – see the post-script.]

Interpretations

I asked management if there was an innocent interpretation of this discrepancy – indeed I gave them a draft copy of this post.  I have not received a reply.  So I will provide an incomplete list of alternatives.

First guess:  It could be that management are so incompetent that they have parked all this cash in a bank account without even asking for a market yield. 

Second guess:  It could be that someone is stealing the interest by say depositing it somewhere and having the interest shifted to another account.

Third guess:  It could be that the accounts are wrong and the interest is being earned – it is just not properly reported by the company.

Fourth guess:  It could be that the cash balance does not exist so it is not possible to earn $200 thousand per quarter – and that $17 thousand per quarter in interest is reflective of the real cash balance. 

There may be another interpretation – but the company has not helped me.  I am again reaching out to the company for help.  They can now provide an explanation by press release and/or SEC 8K filing.

My guess

If I were forced to guess I would suggest the most likely explanation is that the cash balance is missing.  The company has claimed to earn lots of money on what is a non-functional internet travel company.  Its a fair guess – faced with this bit of corroborating evidence – that the earnings are not there and hence the cash balance is not there.

Reasons people are buying the stock

It is now absolutely established that this company does not sell travel in the way that they press released to the US capital markets.  Even in Chinese there was no mechanism to allow you to finalize travel on the internet.  (There have been some minor changes to the website over the weekend and in some instances you are sent to third party credit card clearing companies.) 

This post gives you reason to question the rest of the accounts – to question whether the earnings are there (or indeed if there are any earnings) and whether the cash balance is there.

Still the clear thinking on this blog has not stopped people buying over 10 million shares at over $3 and sometimes over $4 each.  Someone has a different interpretation.  If they share it I will happily allow it in the comments.  But my guess is that the cash and the earnings are not there.  The company provided no alternative explanation despite repeated attempts to contact them.

 

 

John

First postscript:  Official rates in China are above 5 percent.  Banks in China are awash in deposits and do not feel compelled in any way to pay official rates.

There are guideline interest rates that one reader pointed me to – which range from 36 bps to a few percent – and are over 1 percent for 7 day call deposits.  Large depositors earn more than these rates though how much more is in dispute.  (I have looked at several Chinese companies and the 2-3 percent number I used was taken on much advice.) 

That said – the company earned $17 thousand in interest in the quarter on average balances likely near $40 million.  That is 0.17 percent per annum – or less than half the lowest interest rate in the table.  The point is still made – the interest receipts and cash balances appear inconsistent.

Universal Travel Group – another video log

There is more to this story than the dysfunctional website and the fact that an internet travel agent pays a lot in commissions (as part of cost of goods sold, not salaries I might add).  But for the moment the website is just so funny.

One reader suggested that it was possible to book a return flight with the return date before the departure date.  It was not quite possible – but hey – that was because it wasn’t possible to book anything.  But I tried that trick… and it was fun.  (This video is in high definition so you can see all the text if you want to push the 720HD option and look on full-screen.) 

 

John

 

 

Follow up on the Universal Travel Group post

I woke up this morning  to find people on the Yahoo chat board saying that I should be hanged and  the company saying they deny “all the allegations contained in the blog” and telling me they “will be aggressively pursuing all legal remedies.”

To the latter there is a simple defense to this – which is to demonstrate that their site did not work.  I have done so with a video (now placed on YouTube).  I am not going to embed it because it is frankly boring as most of my readers would know how to book a plane flight or a hotel online anyway.

Several journalists wanted my comment – and it was the same… just test it out.  Everything needed to verify my blog post can be done from your office in your little hedge fund or in the SEC.  Journalists both inside China and outside China have asked me for comment – and the comment is the same… just try and book certain things with the website.

I was explicit – there is an old-fashioned phone-based travel agency underlying this site.  If you are in China and you give your 11 digit mobile phone number there are many places where you think you are going to complete the booking process online and then a box turns up to expect a phone call from a person to actually complete the booking process.

As far as we can tell this is not an internet travel agent in that you cannot finalize a transaction online.  This is from a company that once said this in their press release:

The new website will integrate the Company's three previous, separate ones (Classic, TRIPEASY, and Easytrip versions) into a single more integrated and streamlined platform. Accessible via http://www.cnutg.com , the website is a result of a year of research and development based on customer ratings and feedback. It offers comprehensive and timely travel information and services, including guaranteed low prices, high visual appeal, map support technology and easy payment functions. Additionally, new functionality such as the ability for customers to purchase cell phone minutes using the website should drive additional customers to the site.

My explore found no map functionality, no online payment mechanism, no formalized customer feedback system – indeed very limited cookies.  There was a distinct lack of information (fare terms, reasonable sized pictures of hotels etc).  The site did not match the press release.
You can still however buy many things offline.  As I said – there is a travel agent there – one that pays real commissions out.

Alas there were some things we could not find any way to buy with the website at all such as international hotels.  That is despite the company announcing a partnership with Agoda (Priceline).  This was what the Agoda announcement said:

Under the agreement, Universal Travel Group will offer its customers access to Agoda’s international network of hotels. Through the updated cnutg.com website, travelers will be able to enjoy special Agoda promotions and instant confirmation at tens of thousands of hotels worldwide.  Through this partnership with Universal Travel Group, Agoda intends to increase its exposure in the large Chinese travel market.

The press release announcing this partnership had contact phone numbers from Universal Travel Group and no contact phone number from Priceline.  Anybody want to check with Priceline management how much business Universal Travel are doing with Agoda?

That said the company has fixed a few things on the website since my post.  For instance the English tab on beta.cnutg.com now works.  It did not work prior – and the first I heard about it working was when I was flicking through the posts on Yahoo (if only to identify any direct death threats).  Also the “pick up at the airport in Shenzen” option has been disabled for me – but as of a few minutes ago it was still available for a journalist in Beijing when he tried to book a flight out of Beijing.  Also now rather than some error messages I am now getting a “we will dial you back to complete” message which is clearly an improvement.

But life is not about travel companies in Shenzen and their trolls on the Yahoo chat board thinking you should be hanged.  Life is joyous.  Travel is one of the things that is fun – and so is YouTube. As I said, I made a YouTube video of me testing the site – and showing some of the glitches – especially the international hotels glitch.  Alas it is boring and this blog aims to entertain.

So rather than think about me being hanged I suggest you look at this interpretation of Lady Gaga.  It made my day…

John

Travelling through China with the Universal Travel Group: fly from Beijing to Yichang – pick up your tickets at Shenzhen airport!

I am close friends with the major investor in a small but well placed online travel business. If you ever need a modestly priced hotel in Australia by far the best site is www.checkin.com.au. It does not have the best range – but it fulfils the function of the discounter – running on the thinnest margin and being a place where hotels can (quietly) shift their excess inventory. If you want a business hotel in Sydney don't bother with anything else – checkin.com.au is the best deal. If you want a romantic getaway in the Blue Mountains there are plenty of other suggestions though you might get lucky with the discounter.

Travel booking companies have – for the reasons stated above – interested me. And – being in my business – I like a cheap stock.

So a fast growing online hotel and airline booking company in China trading at a PE ratio of about 5 caught my eye. I can't resist a bargain.  Here is the company description from the footer of their press releases.

Universal Travel Group is a leading travel services provider in China offering package tours, air ticketing, and hotel reservation services via the Internet and customer service representatives. The Company also operates TRIPEASY Kiosks, which are placed in shopping malls, office buildings, residential apartment buildings, and tourist sites. These kiosks are designed for travel booking with credit and bank cards, and serve as an advertising platform for Universal Travel Group. The Company's headquarters and main base of operations is in Shenzhen in the Pearl River Delta region of China. More recently, Universal Travel Group has expanded its business into Western China, opening a second home base in the Chongqing Delta region, and other attractive, under-penetrated tier-two travel markets throughout the country. For more information on the Company, please visit http://us.cnutg.com .

But we at Bronte insist on at least some due-diligence and so we spent some time fiddling about in their website. I will cut to the chase. We will not be buying the stock.  Too Jabberwocky for us.

Background: the claims made by Universal Travel Group

The Universal Travel Group (NYSE:UTA) is a consolidation of small-scale travel agents and group tour companies in China. None of these are very attractive as a stock investment. The real appeal is in an online-booking travel company that company presentations compare to Priceline, Expedia and CTrip.  (CTrip is the dominant Chinese online-booking service. It trades on the Nasdaq, has a market capitalization just below $6 billion and has a price-earnings ratio just above 50.)

The UTA website gives a business description. I have included in here the screen-shots from the website in case the websites change in response to this blog. Here is the screen-shot.

 

 

I should quote this because it is worth coming back to. They claim to have “convenient online payments”, “more than 170 countries overseas, more than 30,000 hotels”, “more than 200 professional staff”, “over 300 UTG customer representatives across the country ready to provide 24/7 service”, “primary agent of domestic and international airlines” and an “IT Team … composed of specialists from all across the world [which] includes experts who specialize in customer management systems, call center system, order processing system, air ticket reservation system and service quality monitoring system. With over 5 years experience in e-development, they will ensure your experience goes smoothly and efficiently.”

This sounds – at least by this description – as a competent standard hotel-and-flight booking engine. The website you see above is a little strange because it does not have a tab to book cars and on a business trip I normally take a car – but that seems a small omission. [CTrip does have a car-tab on their website but it is small and you discover that all rental cars include a driver which is probably a necessity for a gweilo like me driving in China.]

So far – so good.

Alas when you start to use this site you wind up going down a rabbit hole of Lewis Carroll proportions.

Trying to book a flight: Beijing to Yichang

I most certainly was not going to buy an online travel company without checking out their IT – and what better way to do that than by using it.

Fortunately UTA has an English language travel booking site (http://en.cnutg.com/). On it I tried to book a one-way flight from Beijing to Yichang. That is a trip I made largely by rail in the early 1980s which was – I can assure you – a different time in China.  Anyway fairly quickly it gave me three options. A screen-shot is here.

 

This is fairly convincing. They are the same flights that I found when I did the same search on CTrip.com. Indeed the prices were identical – and the main advantage of CTrip was that it also told me the pricing on alternate days in a neat graphical format. CTrip also gave me some neater phone options – including skype.

There were some oddities – the site had no box (pop-up or otherwise) which explained ticket conditions. You did not know whether these were non-refundable tickets or whether flight times could be changed and under what terms. Those conditions were clearly available on CTrip.

This gets really surreal when you try to actually book one of these flights. Here is what happens when I try to book a ticket on flight CA1823 on Universal Travel Group's website. First I get taken to a page where it asks me to identify myself by passport or ID card. I chose an Australian passport (but used a fake number). It also asked me how I wanted to pick up the ticket: at the company, the airport or onsite delivery. I chose the airport. It gives me a payment option – being cash or credit. The screen-shot is below.

 

Now there are again some odd things about this – most notably the airport address they want me to pick the ticket up at. It is Counter 42, 43 Terminal B, Bao'an International Airport, Shenzhen. Now remember I am booking flight from BEIJING to YICHANG. There is no indication that I will ever be in Shenzhen. It is 1200 miles from Beijing to Shenzhen – it might be a little out of my way to collect the ticket. In the American context this is like flying from New York to Greensboro North Carolina and being asked to pick up the ticket in Miami.

We did the same search in Chinese and we got the same bizarre result.

By contrast – when I did the booking button on CTrip.com it made me register as a customer – and then took me to a much more sensible page with options to give addresses and mobiles both inside and outside China and with payment options including credit cards and Paypal. It also had highly sensible pop-up boxes which told me the conditions of the ticket (for instance under what terms I could change my flight times).

But – just to be convinced – I needed to see whether I could book a ticket for delivery at an airport 1200miles from my starting airport. So I tried it using the cash booking option. It would let me – but when I finally pressed finish it gave me this auto-generated page:

Being a sucker for punishment I translated the Chinese and found a standard set of error codes. I got the same when I tried to buy with credit – and at no stage was I given a box to put my credit card in or a link to Paypal.  I did these screenshots using chrome browser. I reproduced them all except the above error using Firefox.  In Chinese I gather there is slightly more browser-choice instability.

Ok – it looks like this travel site is all front-end, no-back end – there is no actual booking, no mechanism of collecting payment – no nothing really.

The company in its stock-promotion spiel says that it allows for “convenient online payments” but there was no mechanism here for making any payment. In this day-and-age it is not difficult to take PayPal. That payment option can be set up very quickly.

Could all this be just because we are doing this in English and this is a Chinese company?

By this stage we wondered if we were going insane – was this a real company at all? We had a friend repeat precisely this experiment in Hanji. His results differed in one important way – which is when you actually gave a phone number and confirmed a booking they said a consultant would ring you back. 

 

 

Also – the prices were consistently 2 percent cheaper than if you were querying in English.  Finally – and this was to my view key – there was a SKYPE ME button just like on CTrip.Com.  You could not pay online – but this was lead generation for an off-line travel company.  There was something there – it just wasn’t “instant reservations” and “convenient online payments”.

Note: no international airlines

There is one more strange thing about this website – there is no opportunity to book international flights.  The web page pictured above however describes the company as a Primary Agent for international airlines.

Hotels

The bit of this business I have thought most about is hotel booking. That is my close friend's business. If a Chinese travel company is compiling inventory in foreign hotels they must be obtaining that inventory from someone. I thought I might book a hotel near home and check the company that way. Fortunately on the front page they had an “International Hotels” option. I thought I might book something in Sydney and take my wife somewhere nice. And having done that I might even work out whose inventory they were selling. (That would be of interest to my friend's business – which is after all – a business of sourcing and trading in hotel inventory.)

Here is the International Hotel booking page.

Ok – so I tried to pick a Sydney hotel for next Friday night – which seems like a nice time to take my wife out. Alas my precious darling will be disappointed. They do not have a hotel in Sydney that night. Nor any other night I tried.

So let’s try somewhere else – how about New York, NY? Same result.

But if you look at the site it advertises rooms at St Giles The Tuscany – which is a quite nice hotel in New York – so I pressed that link.

It brings up something that looks like the right hotel (albeit with a bad and blurry photo). But the buttons that say “hotel description” or even the button that says “book” do not work. Here is a screen-shot.

I am inquiring to book a hotel. I have got to the right page – and – yes – the button that says “book” does not work. Have you ever known a shop that will show you all the inventory but not let you buy?

But it is worse than that – I tried half a dozen other hotels that they advertised on the left hand side of their page.  Every time it bought up the same indistinct photo.  All the hotels were identical.  I know that one business hotel is more or less like another and when you are cocooned in one it does not matter whether you are in Auckland or Helsinki – but this is ridiculous.  The photos were literally identical.  No wonder the picture naming the hotel is blurred.

We did the same queries in Chinese and found the same thing… for instance we were unable to find any hotels in Sydney or New York on any night we tried.

Maps

The website has a maps tab.  This is a really useful feature for a travel booking company because you can make a lot of money booking travel at short notice to people on the road.  I wanted to fiddle with that.  Alas it did not work – it mapped a small area around Shenzen – which is not much use picking a hotel in Yichang. 

But it was far worse than that – the website was far-from-optimized for use on a mobile phone (running on an iPhone it produced two error codes in presentation which the iPhone asked if I wanted to ignore).  This is serious for a travel website which people often want to refer to on the road.  It is doubly serious for a travel website in China because in China more than most places people interact with the internet through their phone.  

Talking about phones

Well I thought that maybe their website was dysfunctional – but at least I might be able to book on the phone. There was a phone number (400 888 9966). I rang it using the trusty Google Voice which would have represented me as ringing from within China. There was a message to press “6” for English – which I pressed – and then they fed me through an endless Chinese menu. I pushed buttons at random and was left on music on which I waited for 30 minutes.

I figured I needed a Chinese speaker to do this – so my friend came to my rescue.  After some dropped lines and the like he found that – underlying this and at the other end of the phone was a real travel agency.  You could book both domestic and international flights on the phone.  Indeed the website has an international flights tab in Chinese – and when you get through to the booking screen they indicate that they will phone you.  Do not think for a minute that this company is entirely fictional – we are sure that there is a travel agency underlying this company but it is not an internet travel agency with “air ticketing and hotel reservations via the internet”.  It is an old – limited dial up travel agency – precisely the type that is being disintermediated by the CTrips and Pricelines of the world. 

The phone was answered in Cantonese. This company purports to be a nation-wide service and my friend expected a conversation in Mandarin. When my friend was talking in Mandarin the conversation changed.  If this were a national company (as it purports to be) it would have answered in Mandarin.

By this stage I was more than a little intrigued by this company. I dug around their website a little further – and found beta versions of their website. One site was even labeled as such – it was http://beta.cnutg.com/ . Here is a screen-shot of that page.

 

The copyright date at the bottom (2009) suggest this was not done very long ago. The page itself is sketchy and dysfunctional. The bookings tend to go nowhere (surprise) and the English language tab does not work at all.

Customer Management

This company claims it has IT experts who specialize in customer management systems.  They too are strangely missing.  For instance in the main website in the top corner are four options - “Sign In”, “Register Now”, “Order Management” and “My Account”. They lead to the same page – so there is really no distinction between them. Once you sign in there is no “Order Management” because they are as noted unable to take an order. But before that there is something which stands out like a sore-thumb. There is no “forgot my password” option. The cookies on the site do not remember your ID. (CTrip remembers your ID and remembering your ID is key to getting repeat business.)

My travel-business entrepreneur friend will tell you that repeat business is the key to profitability in one of these travel booking businesses because the customer acquisition is very expensive. Google (or in China Baidu) really do take their cut as key words are very expensive in travel. This company has not even got the basics of customer retention right.

But I want to bring you back to core claims of the company which I repeated above. They described their “IT Team … composed of specialists from all across the world [which] includes experts who specialize in customer management systems, call center system, order processing system, air ticket reservation system and service quality monitoring system. With over 5 years experience in e-development, they will ensure your experience goes smoothly and efficiently.”

Now look at their English Language IR site

The business behind this can't book any travel on any website we found. 

According to the investor relations website the core business of Universal Travel Group (the flight booking service) apparently has 248 employees at the end of 2007 and presumably many more now as they have (at least according to the accounts) grown like a weed.  For starters I will stick with 248 as a minimum number. Here is the website screen-shot.

 

The woman sitting in the center is the CEO/Founder – her name is Ms. Jiangping Jiang and strangely for a hyper-successful travel executive she speaks no English.  That said – the text here says that they have entered into sale agent agreements with all the domestic airline companies and “over 30 international airline companies”.

UTA is – according to their (stock) promotion the fastest developing air-tickets agency in the domestic civil aviation industry...

It all looks very professional but only at first glance…

The NYSE drops its guard

I would not be surprised if this stock were listed on the Pink Sheets or even the AMEX. This sort of stuff you can find on the UK's AIM board – but the New York Stock Exchange is special.  They have higher standards!  To date the SEC has only forcedly delisted a single NYSE listed company for fraud – and that was ACLN.

The NYSE must be pretty sure of itself.  UTA has received one of the highest honors in capitalism... they opened the floor of the NYSE.  It is an honor I doubt will ever be bestowed on me. 

 

 

How the company represents all of this in their accounts

By my reckoning this is a company where you can almost not bother looking at the accounts – you could short it off the website.  But – being an accounting junky I am going to look at the accounts anyway.

First I want to look at the 10K. There they break down the business by section -

You can see why the stock is sold on the Air-tickets and Hotel booking business. Air-tickets it seems have an 84 percent gross margin. Hotel bookings a 67 percent margin. Tours have a 13 percent gross margin.

There is one thing which jumps out like a sore thumb in this table - and that is there is no elimination line in the revenue break-down. Surely the Tours business buys stuff from the air-tickets or hotel businesses? 

That lack of an elimination line is enough to question the company’s accounting.  If they don’t trade with each other at all then they do not belong together – and there is no reason to have them within one corporate structure.

However I am less concerned with the revenue line than with the cost line.  Look at the cost of services in the air-tickets and hotel business. The air ticket business had cost of services of 2.7 million dollars – and this is for a business that claims to have 24/7 offices all over China, delivery in over 50 cities and an IT Team of specialists across the world.

The company fortunately even gives us a break-down of costs in various sections.

This global team of IT and CRM specialists comes cheap – website maintenance for the core airline booking company comes to $44 thousand. No website maintenance is listed for the hotel business at all.

It is of course consistent with my discoveries about the website.  There is no functional website, no booking system, no payment system, no international airline tab except in Chinese, no rental car tab, and photos of all the international hotels being identical. 

As it is impossible to pay (despite them claiming “convenient online payments”) it is likely that there is no substantial revenue in that business. 

The company is however not entirely fictional – there was a real kiosk travel business – and there is an underlying travel agency. 

The company claims in its core business to have 248 employees at YZL as of the end of 2007 – but given growth and acquisitions that number has grown.  This business claims staff costs of  $436 thousand.  That is about $1800 per person per year using the low 248 employees number.  This business would normally include some IT staff and other above-average wage earners – indeed one of the slides above says that the hotel booking business has “over 200 professional staff”.  The minimum wage in Shenzen is 1100 Remimbi per month which is $162 per month or $1940 per year.  At a first cut this company is paying under minimum wages.  In the claims at the top of this post they claim over 300 UTG customer representatives in just the call center.  I guess a lot of people might be part time and there are very few higher-wage staff such as IT workers.  But whatever – either they don’t have the staff or they are very lowly paid or the accounts are wrong. 

Total salaries are just over $500 thousand – and the company has claimed to have IT staff around the world, a 300 seat call center and over 200 professional staff. 

The company also claims to have telecommunications expense of about $75 thousand annually.  With over 300 people in the call center (as per their stock promotion quoted above) these call centers would be the cheapest in the world to run bar none.

However here I am comparing the salary bill to minimum wages.  A quick Google search tells you that sales managers in Shenzhen are very highly paid by Chinese standards.  Here is an article from 2007 that suggests the average salary for a Shenzhen sales manager is over USD40 thousand.  There has been wage inflation in Shenzhen since then.  Average salaries in Shenzhen are only a fraction of those lofty levels but still roughly 4 times minimum wage.  It seems impossible that there is a 300 person telephone center function here at those salaries and the cost base detailed in the annual financials – however I can only point out inconsistencies – I cannot verify whether the annual filing (10K) or the 300 person phone center statement is correct.

But hey – I am being kind to them.  I am using the end 2007 employee numbers.  The 10K has the following employee disclosure:

Employees

At the current time, including our officers, we have approximately 780 full-time employees, including 80 administrative employees, 200 marketing employees and approximately 500 employees working at our three call centers. None of our employees is a member of a union and our relationships with our employees are generally satisfactory. In accordance with Chinese Labor Law, we provide social security and medical insurance to all our employees.

Total staff and salaries costs are – as I noted – just over $500 thousand.  And for that money – less than $700 an employee per year – they not only pay them but they provide social security and medical insurance.  (I don’t think I need to go through the proxy, work out costs of the executive staff and hence – by subtraction – work out the costs of the non executive staff.  If you do it though you will conclude that – if there really are almost 780 non-executives and they are only paid that then they must have a truly miserable existence.  Whatever – it is unlikely that their relationships with “780 employees” at that total staff cost would be “satisfactory”.)

Thinking about the costs from a business perspective

I want to think about these costs from a business perspective. There is almost no customer acquisition cost in the accounts. In this business getting customers in is really expensive. Travel related click fees are amongst the most expensive clicks on Google – and I presume that they are on Baidu too. Indeed in a thin-margin business like www.checkin.com.au if you aggressively seek additional customers you grow quite nicely but eventually with negative margins. You will make money only if the customers return and book more flights/hotels without paying additional click fees to Google. This is a company that – at least in its accounts – is growing like a weed with zero customer acquisition expenses – and with an entirely dysfunctional website.

Is there any case for owing this stock at any price above zero?

I want to head this one off at the pass. It is pretty clear from this analysis that the main reason for owning the stock of Universal Travel Group is dubious. The online booking engine is dysfunctional  – and the massive margins that it claims (84 percent for plane tickets) are thus also dubious.

All the profits that the company claimed it made out of the travel booking business (by far the bulk of its claimed profits) are similarly dubious – though there is a real travel company which might be making some profits.

The company claims in its most recent quarterly balance sheet to be carrying 43 million in cash and accounts receivable of almost 20 million. If the airline and hotel business are dubious then the profits generated that cash are dubious. In that case the cash itself is dubious.

I know people will buy this as Ben Graham net-net stock if it collapses. Unless this company can get a big four audit firm to sign-off for them I think you can – at least for the moment question the entire balance sheet. They have however just appointed a new auditor. I quote the press release: the Board of Directors, in consultation with its Audit Committee, has appointed Goldman Kurland Mohidin ("GKM") as the Company's independent auditor to replace Acquavella, Chiarelli, Shuster, Berkower & Co., LLP, effective September 1, 2010. I don't know who GKM are – and I will be thrilled if any of my readers can – off the top of their head – name three other companies they audit.  Whatever: I think that GKM can take it as read that this is a higher-than-normal-risk audit assignment. And the first thing to do – confirm the existence of that $43 million cash stash.

How the company is behaving?

The company is not behaving as if this is a cash rich company. The company has one real business – 1523 travel kiosks which appear in company promotional literature as electronic booths. I think this was (at least at one stage) a real travel booking business and remains one albeit off the internet.  The kiosks were places that people without a computer or phone could book travel online using a touch screen. I have not seen any of these kiosks but have spoken to people who have. They just sold them for 40 million CNY – or about $5 million. They proudly note however that they get to keep the travel-related revenue from these kiosks for the next two years. As this was the foundation business for the company it seems unlikely they would sell it especially as the accounts suggest they are awash with cash.

They did not announce whether they had a gain or loss on the sale of that business – but someone I know was told (last year) by the company that the cost base of these kiosks was about $6000 each. On those figures they are taking a largish loss. This is not the behavior of a company with a strong business swimming in cash.

The company has however been buying other businesses – such as a hotel booking business in Chonquing. But the other company websites including this one http://www.cba-hotel.com/ have – when worked on – a similar Alice-in-Wonderland character. That site produces similar errors when it gets around to payment time. It is however browser sensitive.  If you use Firefox or Microsoft Internet Explorer you wind up at pages which are gibberish – not even recognizable Chinese. (I relied on Chinese friends to tell me that though – I can't tell the real Chinese from the gibberish Chinese.)  Whatever browser you use you wind up with the strange inability to book anything. 

The CBA-hotels.com site however does have a forgotten password option – they will text your password to your mobile phone.  If someone has a Chinese mobile phone I would love them to test that.

Still – other people have a different impression of this website.  One broker (Emissary Capital) report described this website as follows:

In August 8, 2007, UTG acquired Shanghai Lanbao Travel Service Company Limited, a centralized real-time booking system that provides consumers and travel related businesses with hotel booking services via the internet and mobile phone text-messages. The company owns and manages the award winning China Booking Association website, http://www.cba-hotel.com/, which receives approximately 200,000 visitors daily. The network is open to more than 200,000 hotels, 5,000 booking centers and 8,000 travel agencies and tourist companies throughout China. Its intra-hotel network includes more than 3,000 franchise hotels and 800 hotel booking businesses and agencies across China. The company’s China Booking Association website, http://www.cba-hotel.com, receives about 200,000 visitors daily and, in 2006, made about 500,000 hotel reservations.

Maybe the good analyst at Emissary had a different experience on the website to us.  They paid cash and stock for that business.  The stock I presume has found its way to the NYSE and hence to retail and institutional investors in America.

Did we find that there was anything real about the company in our investigation?

Yes. There are non-fictional elements here. As far as we can tell the company really does run tours. The margins for this tour business are higher than most tour businesses report – and given the accounts are clearly more generally questionable I would not put much store in its value – but there is some value here. 

More to the point there is a real telephone based travel agent here – one that does not present as a national agent (the phone is answered in Cantonese).  But as there is a travel agent there will be some sales. 

We also were surprised that some things we found on Google and Baidu in Chinese that were more supportive of this company than most of this blog post. The company press released that it had received some awards:

Universal Travel Group (NYSE:UTA) ("Universal Travel Group" or the "Company"), a leading travel services provider in China offering package tours, air ticketing, and hotel reservation services online and via customer service representatives, today announced that it was presented with three awards at the 16th Annual Asian Tourism Golden Travel Awards Ceremony, held in Beijing on August 29, 2010.

Universal Travel Group was honored with the Top Ten Golden Asian Travel Agency and Top Rated Travel Agency in Greater China Award, and Ms. Jiangping Jiang, Chief Executive Officer of UTA, received the Most Influential Figure in the Travel Industry in Greater China Award.

"We are honored to receive these awards which recognize the strides we have made in building a leading travel service business in China," stated Ms. Jiang. "We are committed to providing excellent service and a wide variety of travel offerings to our customers and look forward to continuing to expand our air ticketing, hotel reservation and package tour business across China."

Now awards are – by their nature – public and tourism awards are doubly promoted – so we thought we might find some references to these awards on the web. Alas – there is not a single reference in Google to these awards without the word “universal” in it. A Google Search which insists on the phrase “Annual Asian Tourism Golden Travel Awards” and the absence of the word “universal” presents no results. We thought that the company might have made up the awards. But alas searches using Chinese characters pulled up a few additional references. We can find a 16^th annual award and a 15^th annual award but no 14^th annual award. Here is a link to a press article we found... http://www.chinadaily.com.cn/hqzx/2010-09/04/content_11257208.htm. Indeed we have found some pictures of this award ceremony – and they include photos of executives at UTA... http://travel.sina.com.cn/news/2010-02-02/1523126027.shtml#page_pic.

Relationship with Priceline

The company claims a relationship with Priceline in their conference call.  They claim that Priceline entered this to strengthen their position in China – and that 8000 hotels will be available for online booking through this relationship.  We have not found them. 

But then I encourage readers to fiddle with the website and see if you get something better.  And if you are travelling in China and you want to use their services I would love to hear back from you.

 

 

John

PS.  Disclosure: when we find something like this we tend to go short.  We remain true to tendency. Oh, and in keeping with the Lewis Carroll theme throughout this blog post, if you are long this I have a single piece of advice: “Beware the Jabberwock my son”.

Microsoft laid bare

When I started this blog I promised to explore the negatives in my stock positions at least in part because it forced me to think clearly.  We have a small position in Microsoft - and there is news today which lays out precisely how crushed a company Mr Softee has become.  That news comes from - of all places - Verizon.

The new hot mobile phone operating system is linux-based with overlay system developed by Google called Android.  It is open source and phone makers (HTC, Samsung and even Motorola) can take this system and incorporate it in their phone and not pay a penny.  At first glance it is hard to see how Google makes a dime out of this operating systems.

At second glance it is not.  The way people (especially the young and especially in developing countries) are interacting to the internet is through their phone.  There are plenty of opportunities.  With an Android system it is likely that will be with the Googleplex.  Google - if you haven't noticed - is making plenty of revenue opportunities - and Android is part of the key to catching them.

Bill Gurley nailed it with possibly the best blog post I have read in the past year on any topic - where he described Google's business model as the "less than free" model - where Google will pay people to use their operating system provided they link the end-customer into the Googleplex.  

Of course since anyone can modify the Android system anyone can compete with Google by modifying android and linking into their cloud services.  We could have the Yahoo mobile phone that links you to Yahoo search and Yahoo maps and Yahoo mail.  Or for that matter we could even have the Microsoft Android phone.

No wait - we do have the Microsoft Android phone - courtesy of Verizon.  Verizon has just launched a very-high-powered Samsung phone that runs Android.  Google has been disabled - and everything is linked to Microsoft.  To quote Gizmodo:

Verizon, unfortunately, is also what ruins the phone. Or, rather, what it's forced Samsung to do to the phone, which you could sum up in a word: Bing. Bing is the default—and only—search engine on the Fascinate. A Google Android phone. In the search widget, in the browser, when you press the search button. Bing. No, you can't change it. There's no setting for it, and the Google Search widget that you can snag from the Market is blocked (or at least very carefully hidden). Being unwittingly forced into Verizon and Bing's conjugal relationship is infuriating on its own, but the implementation also feels like the sloppy hack that it is. The co-branded Bing/Verizon portal that an in-browser search takes you to is ripped from the circa-2005 dumbphone-approved "internet," while the Bing Maps app that it pushes you toward is vastly inferior to Google Maps (no multitouch, Latitude, etc.). To be clear, Bing itself is fine. This implementation of it is not.

Now presumably Microsoft paid Verizon handsomely for this.  And that lays reveals precisely how bare the Microsoft business model has become.  Microsoft is in the business of selling operating systems.  Almost all other businesses are extras or adjacencies.  They were once thought to have a "monopoly" on operating systems and were taken to task by the Justice Department.

Well Justice was wrong.  Flat wrong.  Microsoft is now paying telephone companies to use somebody else's operating system - a total business inversion - and one that lays out just how much BS was in Justice's argument.  Ouch.

But worse - Gizmodo argues that Microsoft ruined this phone.  So now Microsoft is paying phone companies to use other people's operating systems and even then they can't get the customers to like them.

Microsoft is darn cheap - even breathtakingly cheap.  But boy is this a dramatically weakened business.  

For discussion.

 

 

 

John

 

 

 

 

Bank capital ratios and standing on tippy-toes

Warren Buffett describes certain types of business competition as a bit like standing on tippy-toes at a concert-in-the-park.  His particular story was in the textile industry of Berkshire Hathaway’s origin - management would come in and sell him on a (very expensive) new set of machinery which would improve productivity by say 30 percent - and hence have a very high incremental return.

He would - after much arguing - agree to put in the machinery.  The same decision was made by every other textile mill in the country.  The marginal cost of producing textiles thus falls - and competition ensures that the price falls.  The machines thus raise productivity but do not raise profits - indeed shareholder returns [cash flows after compulsory (re)investment] fall.  Consumers benefit (which is the joy of competition) but from the textile mill owner’s point of view it would have been better had they just collectively sat on their collective backsides.  He likens this to standing at the concert in the park - individually rational perchance - but it is still better if everyone just uses their gluteal muscles.  

I feel the same about bank capital ratios.  In the UK banks were allowed to lever themselves to a silly extent (similar over-leverage occurs in their life insurance companies).  Overleverage as a policy was the defining character of Northern Rock.  

Individually it makes sense for banks to lever up.  However competition was intense - and collectively it was insane.  Northern Rock was levered 60 times or so - but to mortgages that were really thin margin.  Their spreads were about 40bps.  (I wrote my impression of Northern Rock down here...)

What I suspect is happening is all the banks are standing on tippy-toes.  It is individually rational - collectively insane because competition kills the benefit of all that extra leverage.  Margins in the UK - the most over-levered market on the planet - fell further than anywhere else.  

Of course competition was good for borrowers - at least for a while.  Lower spreads meant cheaper finance - but not dramatically cheaper.  Spreads of 150bps on mortgages levered 15 times is about as profitable as spreads of 40bps levered 60 times.  Competition might drive spreads down by 110bps - at the risk to the whole banking system.

Its bad for the shareholders in the end because the banks get their excessive ROE on a smaller amount of capital at much greater risk than in the safely - and excessively capitalized - regulated environment.

I mention this because of my perverse view that re-regulation - opposed by most bankers - might be surprisingly good for banks over the long run.  

The real winners and losers of deregulation

Competition - I argue - removed any real benefit of deregulation for bank shareholders.  (The benefits for bank management created by the sudden need to cope with this brave-new-world however were obvious.  They saw the opportunity and need to grow to maintain ROEs - and they lent with gay-abandon - taking all sorts of fees, commissions and bonuses along the way...)

The benefit for borrowers of competition however were dissipated in higher home prices and hence larger mortgages.  The real winners were people selling homes - not people buying them.  Even quite modest houses became valuable - and the elderly (the classic group moving to less expensive homes) did quite well.  I haven't heard the expression "old and poor" quite as much as I used to.  More generally you can see the relatively affluence of the elderly in the sell-the-home and go cruising set.  Carnival Cruises was - for a very long time - a better stock than you might ever have imagined.

The other supposed beneficiary was suffering an illusion.  Plenty of people - especially in their children’s teenage years - had an-in-the-end-illusory wealth effect - where they thought their home was worth much more than it was - and felt confidence in spending some of that money - or in saving less for their retirement - because after all they could downsize and they might inherit part of Grandma’s (housing) fortune.  

Net-net the losers out of excessive bank leverage were (a) the shareholders because they got lower spreads and took more risk, (b) taxpayers because they partly bore the risk and (c) younger home buyers because they got royally-rogered by the elderly people they bought from.

I am waiting for some bank management - particularly a stronger incumbent - to see it that way and advocate sweeping bank re-regulation which will (a) reduce taxpayer risk (b) increase spreads and (c) reduce leverage.  This will allow the strong incumbent to earn a good ROE at little risk on a lot more capital and will make the bank's shares a surprisingly good investment.  

I doubt I am going to see it.  These are the sort of @&$?! who stand up on their tippy-toes in front of you at Opera in the Park.

 

 

 

 

John

 

 

PS. Thanks for the many comments on the gold post.  My inbox is also filled so if I do not answer all of your emails it is because they are so numerous.  (I read them all though!)

Gold price and bond price - a comment on the efficient market hypothesis

We live in a strange world - the 10 year US Treasury is trading with a 2.63 percent yield.  The market is presuming that there will not be much inflation in those ten years.  However if there is deflation (as per Japan) then the 10 year will wind up being a very good investment (see my blog post on Japanese bond yields from the perspective of a Japanese household).  

At the same time gold is appreciating very sharply - from $950 per oz to $1250 in the past year - and from $800 two years ago or $450 five years ago.  On the face of it the gold price is predicting inflation.

Try as I may - I can't see any reason why both those prices are correct.  I have long held the view that prices are mostly sort-of-rational - and that finding patent contradictions in pricing should be rare - because - if you can find them - there is usually a way to make money from them.  But this looks wrong.  

So either there is a theoretical way in which both these prices can be correct or even my weak version of the efficient market hypothesis is spectacularly wrong.  But finding the way in which both these prices are correct is taxing my ingenuity.  

My first question thus is can anyone tell me why these prices could possibly be consistent?  Is there a rational reason why the bond market is pricing low inflation and the gold market seemingly pricing high inflation?  Does anybody have the ingenious world view in which both these prices are correct?

The second question is more mercenary.  If this really is as irrational as it looks what is the trade?  What is the set of transactions I can place in financial markets which should make me money?  My gut reaction - being a short-seller - is to short both the long bond and gold - but there are some awful tail-risks with that trade.  For instance suppose money becomes suddenly near worthless - a Zimbabwe outcome.  Then the gold price goes to the moon - and I have to return it - so I lose badly.  And the bonds were a wonderful short in that I just made a lot of dollars - but the dollars are suddenly alas also worthless - they don't solve my problem of being short gold.

So - dear readers - thoughts?

 

John 

A deregulation conundrum

I have just read Daniel Amman’s excellent biography of Marc Rich - the oil trader notoriously pardoned by Bill Clinton.  I don’t want to get into the politics and ethics of the pardon other than to note that few things in it are black-and-white when you finished reading the book.

But the way Marc Rich made his money is fascinating and says a lot about the current re-regulation debate.

Marc Rich exploited price fixing/import/export controls to make simply unbelievable profits trading oil.  Marc Rich & Co (the Swiss vehicle) was started with just over $1 million in capital and a couple of years later was making in excess of $200 million in profit.  This level of profitability exceeds - by far - any other trading operation I have ever seen - and was probably the most profitable trading operation in history.  Marc Rich & Co (since renamed Glencore) is possibly the most valuable business in Switzerland within the lifetime of its founder.

A typical Marc Rich & Co trade involved Iran (under the Shah), Israel, Communist Albania and Fascist Spain.  The Shah needed a path to export oil probably produced in excess of OPEC quotas and one which was unaudited and hence could be skimmed to support the Shah’s personal fortune.  Israel - a pariah state in the Middle East - wanted oil.  Spain had rising oil demand and limited foreign currency but was happy to buy oil (slightly) on the cheap.  Spain however did not recognise Israel and hence would not buy oil from Israel - so it needed to be washed through a third country.  Albania openly traded with both Israel and Spain.  Oh, and there is an old oil pipeline which goes from Iran through Israel to the sea.  

So what is the deal?  The Shah sells his non-quota oil down the pipeline through Israel and skims his take of the proceeds.  Israel skim their take of the oil.  Someone doing lading and unlading in Albania gets their take and hence make it - from the Spanish perspective - Albanian, not Israeli oil.  The Spanish ask few questions.  The margins are mouth-watering - and they all come from giving people what they really want rather than what they say they want.  We know what the Shah wanted (folding stuff).  We know what Israel wanted (oil).  We know what Spain wanted (cheap oil).  Who cares that Spain was publicly spouting anti-Israel rhetoric.  [Similar trades allowed South Africa to break the anti-Apartheid trade embargoes.]

It also helped that Marc Rich & Co was a (highly) multilingual firm.  Rich is fluent in Spanish (it is the language he talks to his children in).  He speaks English, German, Yiddish and presumably Hebrew.  His business partner (Pincus Green - pardoned the same day as Rich) speaks Farsi amongst many other languages.  They could do this deal because they could negotiate it and - deep in their heart they hold the Ayn Rand view that trade is a moral virtue and hence they do not need to be concerned with other morality.  [The only line that matters is the law - and then it might not be the law of his adopted country - Switzerland - rather than the United States where he was resident.]

And when the Shah fell?  Oh well - Pincus Green - an American Jewish businessman - gets on the plane to Iran and does a similar deal with the Mullahs - who - despite their rhetoric will sell oil down a pipeline through Israel - and will allow Israel to skim their take.  Trading through the American embargo - well that is just another instance of getting around restrictions and profiting (very) handsomely.  [Rich would argue that the trades were done by the Swiss company which was not subject to the American restrictions.]

The regulatory regime for domestic American oil was also perverse.  Old oil (meaning wells drilled before the first oil crisis) received one price.  New oil (wells drilled after the crisis) received a higher price.  Squeeze oil (oil that was extracted from wells that ran less than 10 barrels per day) received a higher price still.  The oil could be chemically identical and the price difference over $20 per barrel.  Obviously a trader with a method (any method) of changing the oil source could make a fortune.  Again I am not commenting on legality or morality.  That was just plain fact.  Ayn Rand applies - you give a value and you receive a value.

What all this regulation did was that it allowed people to make simply grotesque profits by thwarting regulation.  The regulation thus worked less well and it was socially unfair.  Pincus Green was good at negotiating in Farsi.  He was astoundingly brave going to Iran immediately after the Shah fell.  He was good at organising shipping.  He worked really hard - but he did not invent something that changed the world and he wound up a billionaire.   Traders make money by intermediating real business solutions - but these were real business solutions to problems made by legislation.  Bad regulation, moral indignation about “trading with the enemy” or “trading with Israel” or with racists in South Africa made people with Ayn Rand morals exceedingly wealthy because you could arbitrage your way around any of these regulations.  

If you read the Marc Rich book you will understand why lots of people who were generally left-of-center became ardent deregulation advocates.  Plenty written by Krugman look like it advocates deregulation. (Not convinced: see his review of Laura Tyson’s book on trade theory in Pop Internationalism.  Indeed see most of Pop Internationalism as favorably reviewed by - of all people - the Cato institute.)

Crank forward to the current crisis: what we see are the problems of deregulation and complexity.  We see traders and investment bankers who get rich - not as rich as Marc Rich and Pincus Green - but still frighteningly rich.  And they get there by taking risks that are ultimately absorbed by taxpayers or mutual fund holders (particularly taxpayers).  We see agency problems everywhere - where management enrich themselves at the expense of others - and they do so by capturing upside but (in part) socializing the downside.  Regulation in this case is about controlling agency problems - about stopping people privatizing the profit and socializing the losses.  

A plea

As a plea then I want a debate about the right form of regulation - a regulation that controls agency problems but does not allow arbitrage opportunities to people with “Ayn Rand morals”.  

We are not going to get that from the current Tea Party Republicans.  They simply argue that regulation (they say but do not mean all regulation) impinges on “freedom” (something that is clearly a good but hard to define).  However many of the same people want planning regulations to ban a mosque in downtown New York because it is an insult to the victims of 9/11 (and banning mosques is not a restriction on “freedom”).  

If that is the level of debate we are not going to get good re-regulation - we are just going to get pandering to whichever lobby group manages to garner most support.  And that is a real risk because we will leave agency problems in place (they benefit the rich and powerful) and we will introduce the same sort of (dumb) regulation that made Marc Rich and Pincus Green astoundingly wealthy.  That sort of regulation also benefits the rich and powerful - especially those with “Ayn Rand morals”.  [The rich and powerful - if you have not noticed - are good lobbyists.  Unless we are careful many amongst them will get their way.]

I don’t know how to do this well - but I thought I would state the obvious.  The most obvious things that need regulation are things with a government guarantee (implicit or explicit).  If you have an implicit guarantee (as we now know almost all large financial institutions have) then regulation really matters.  If there are large agency problems (small shareholders, large management) then regulation should be deliberately biased to put power in the hands of shareholders not managers (eg banning staggered board elections).  

Likewise other agency problems should be strongly policed and the regulation should be of the form that allows that policing.  When Elliot Spitzer found that Marsh - a large insurance broker - was participating in bid rigging against schools buying insurance that was shocking - and is precisely the sort of thing in financial markets that should be policed strongly.  But it took Elliot considerable effort to find and prove his case.  The rules should be established so that sort of behaviour is really difficult to hide.  

And I do not think that I need to explain to anyone how much mortgage brokers contributed to the crisis by (a) deliberately misleading borrowers about conditions on their mortgage and (b) participating in the faking of borrowers income/assets/education level when they on-sold the loans to Wall Street.  Agency problems were at the core of the crisis.

On the other side if there is no agency problem then deregulation should remain the order of the day.  Trade restrictions create arbitrageurs - and the arbitrageurs ensure the trade restrictions don’t work anyway.

There are obviously going to be extensions to this rough rule - and this post is really to garner discussion.  But for a start I expect agents who benefit from their agency (and the abuse of their agency) to join the Tea Party.  

It is difficult to get policy right.  And when and if the policy is got right we are in for a very long fight to implement it.  

 

 

John

Virtualization - one more benefit - and one more Hewlett Packard problem

The main market for virtualization is not desktop computers - it is servers.  Rackspace for instance is really a business running virtual private servers.

Rackspace claim 99.99 percent availability - but it did stuff up once and upset Michell Maulkin and Justin Timberlake.  That was a small failing (and I would not worry too much about either of those people being upset).  But more to the point - the failing was less than 20 minutes.

We however at Bronte have a server (an old Dell box!) connected to the net via a DSL modem and the vagaries of Telstra (possibly the OECDs worst incumbent phone company).  My business website is down.  Worse - my @brontecapital.com (that is business) emails are bouncing...

The problem is - you guessed it - Telstra.

One advantage of a virtual server in the "cloud" is that it can be mirrored in jurisdictions other than my own and hence removes the Telstra risk.  Telstra risk is a serious problem in Australia.

The cloud may be an online offer - but it is almost certainly a superior product.  And to anybody whose email bounced... sorry.

Over time we will give up on in-house information technology and move entirely into the clouds.

And if you are a Hewlett Packard shareholder you should think that through.  The cloud is ultimately cheaper, allows you to outsource (or remove) your IT staff and offers superior execution.  That is wonderful for many - but for the incumbent midrange server maker having a competitor that is superior in every way looks - well - ugly.

John

3Par - your blogger needs a brain transplant

I have just done a huge amount of work on virtualization (see the recent "geek" posts here and here and here and the post on Dell).  I worked out where Dell was going on virtualization and understood that HPQ was likely to play "catch-up".  (This surprised me - I was stunned how far Dell had travelled.)

I understood the 3Par acquisition - and knew that HPQ was also lacking in this area and thought that Dell was (cleverly) leaving Hewlett Packard strategically challenged.  I also put a small short on HPQ because of this.

So - having got all that way it never occurred to me Hewlett Packard would overbid Dell for 3Par.  

Going long 3Par was an easy bet.  Its downside was protected by Dell's cash bid (which would completed as the deal was important to Dell and Dell could finance it with cash on balance sheet).  The upside was an overbid by HPQ.  It was a bet with very nice risk-return characteristics.

And I did not do it.  

Politely that is "lack of execution" - but I should stop making excuses.  One word for that one: dumb.

 

John