Bidz Sings the Blues

Even the jewelry discounters seem to be bracing for a sapphire-blue Christmas. Online auctioneer Bidz.com (Nasdaq: BIDZ  ) posted healthy third-quarter results last night, but then doused investors with a bleak holiday outlook.

Let's start with the good stuff. Third-quarter revenue climbed 38% to $55.4 million during the period, a welcome direction after high-end e-tailer Blue Nile (Nasdaq: NILE  ) posted a 3% dip in net sales during the same period. Earnings clocked in at $0.13 a share, just below the $0.14 a share it posted a year ago. That figure was nonetheless comfortably ahead of Bidz.com's guidance, which called for profits to fall to between $0.10 and $0.11 per share.

Ready for the bad stuff? There's plenty. The top-line surge wasn't simply driven by thrifty bling buyers hitting up the company's namesake jewelry auction site; buying activity actually fell at Bidz.com. The real driver here was a $17.2 million revenue gain from B2B transactions that won't continue materially into the fourth quarter. In other words, buying and selling a ton of butcher knives may have been a low-margin boost for the company, but it can't erase the weakness at Bidz.com itself.

The company is sticking to its earnings guidance of $0.56 to $0.59 a share for all of 2008. That means Bidz.com expects to come up short in the current quarter by the same amount that it beat guidance in the third quarter. Revenue isn't getting off so easy. New guidance calls for revenue of $215 million to $225 million this year, replacing the earlier $240 million to $245 million outlook.

That may not seem like much on a percentage basis, but keep in mind that Bidz has already generated $172.3 in net revenue during the first nine months of the year. Subtract that from the full-year projections, and Bidz is shaving its holiday quarter revenue guidance by roughly one-third.

Bidz isn't alone. Other e-tailers that move jewelry, such as Amazon.com (Nasdaq: AMZN  ) and Overstock.com (Nasdaq: OSTK  ) , posted respectable third-quarter growth, with Amazon in particular talking down its fourth-quarter prospects.

On the retail front, global giant Signet (NYSE: SIG  ) recently clocked in with negative comps. Stateside bellwether Tiffany (NYSE: TIF  ) checks in later this month.

The upside here? After seeing its stock plunge by as much as 38% this morning, Bidz is now trading at less than seven times this year's guidance. Better still, the company has historically been conservative in its outlook, having exceeded its bottom-line guidance in each of the past seven quarters.

Cautious investors may want to wait until auction activity at Bidz.com -- or buying patterns at its new fixed-price Buyz.com site -- turn around. But opportunistic investors may feel more impatient. With a debt-free balance sheet and head-scratching valuation, catching a falling steak knife -- or butcher knife, if you will -- is awfully tempting here.

Other proposals to ponder:

Blue Nile is a Motley Fool Rule Breakers pick. Amazon.com is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz finds the Bidz.com site magnetic, but he's not much of a bling king. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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