Thursday, February 28, 2008
The Psychology of the Call for JRJC Q4 2007
Psychology of the Call hates when management avoids the truth and opts for buzz words. JRJC is guilty. The CFO's delivery was very defensive and more nervous than we prefer. CFO shrugged off the Chinese market melt down as "volatility" at least 2 times, not the transparency we appreciate. Investors know the Shanghai has fallen from 6,100 to approx 4,350 today, which points to a bear market more than simple volatility. Besides missing the high end of Q4 guidance, JRJC failed to guide up for the next Q. They’re estimating revenues to come in at $10.5M on the high end, where the previous high estimate pegged them at $10.7M, a red flag. We never recommend buying small cap ADRs that do not exceed estimates, never ever, period. JRJC's SG&A costs (selling, general, and administrative) are troubling. A subscription business model cannot be successful in the long run with such ballooning expenses/costs. Management tried to explain this away as "bonuses" to telemarketers, but we don't buy it and we urge our readers not to either. We see JRJC's future being crippled by higher operating costs through out 2008 and beyond. Sarbanes Oxley is not going away unless Ron Paul wins the election and the chance of that happening is near zero. Lastly, we view the Chinese Telecom deal as a negative development. Larger, better capitalized portals like BIDU could announce similar financial services for free tomorrow, causing over night insolvency. Is it possible JRJC's management is privy to a large portal planning to offer free financial information? Please close your eyes and visualize a publicly traded company in your portfolio with no competitive barriers toward entry. Now open your eyes and look at JRJC. Patents and intellectual property matter and JRJC has neither. We reiterate the back end loaded year as a mortal excuse which must be questioned in the face of a falling Chinese market, breaking our 6th Commandment. Brean Murray's analyst changed rating on the shares 3 times in the last 3 months, currently at a buy. We hope Brean Murray scrutinizes JRJC's back end loaded year as wishful thinking in what has become a painful Chinese stock market. We thank you for your time and remember, the Psychology of the Call is always on your side. Next JRJC update March 5th. Please obey the 11 Commandments.. cheers!
Posted by The Call Team at 10:13 PM