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Monday, December 27, 2010

E-commerce specialist GSI Commerce Giant

In the third quarter report October 27, it said revenues for your full-year could be $1.35 billion, a 35% increase from 2009. Revenue’s never been an issue for your company. In 2000, its revenues were less than $50 million. Profits, as I wrote within my original article, are a totally different matter. Between 2005 and 2009, its cumulative income from operations was $16.6 million on $3.8 billion in revenue. That’s an operating margin of under 1%. Grocery stores fare better. Supporters of the company will point for the non-GAAP numbers, suggesting the actual profit this year could be more like $133 million once you add back depreciation, stock-based compensation, etc.

If you want a PhD in accounting to figure out the correct numbers for a corporation are, you shouldn’t invest. Here is the most frustrating thing about the company. It’s operating what ought to be a goldmine of your business. The Cyber-Monday numbers don’t lie; people like buying stuff online. But also for some reason its business model doesn’t permit profits. Can it be that its clients, which include Ralph Lauren, Timberland, Dick’s Shoe  and Aeropostale (NYSE:ARO) have cut too good an arrangement with them? If you cannot make money off fulfillment, why bother carrying it out.

The business has three operating segments with all the majority of the revenue generated from e-commerce services. Unfortunately, those operating margins were 8% in ’09. That does not leave much for interest and taxes. However, its interactive marketing services division, in charge of just 13% of its revenue last year, delivered 33% of their operating profits. The next segment is consumer engagement, which assists retailers unload left overs and taken into account just 3% of revenues (just one month contained in 2009 – see acquisitions) and a small loss. It seems to me it will be much more sensible to help keep the 2 smaller segments then sell the much bigger and unprofitable fulfillment division. The 2 segments might lose business when breaking the inter-company relationship nevertheless the expertise it’s got should be marketable with no fulfillment. If not, this is an incredible mess.


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