CEO Gaffe of the Week: BroadVision

Last month, I introduced a new weekly series, the "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the Worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the t op -- and with leaders like these on your side, sometimes you don't need enemies!

This week I want to highlight the suddenly popular business-to-business software firm BroadVision (Nasdaq: BVSN  ) and its CEO Pehong Chen, as I wag my finger at Wall Street bad boy Jonathan Lebed.

The dunce cap
Don't look now, shareholders, but your stock looks like it has the potential to wind up on the wrong side of 60 Minutes if this keeps up.

To say that BroadVision shares have been taken for a wild ride since the beginning of the year would be a gross understatement. Shares began the year around $11, traded as high as $44.75, fell back to $20, and ended yesterday back above $31. No, this isn't 1999 all over again, but if you looked at the culprit behind the move, you'd certainly think so.

It took some digging, but news surfaced as early as two weeks ago that Lebed, the famous penny-stock pump-and-dump promoter who at age 15 was forced to settle with the SEC for hyping stock prices, was promoting BroadVision as his top pick of 2012. The move by Lebed really isn't surprising, since BroadVision has an extremely low float of just 4.5 million shares, which allows for easier manipulation of its stock price. Apparently aging 12 years really hasn't done much to change Lebed's approach to stock valuation.

A quick rundown of BroadVision's past performance is enough to make any sane individual run in the other direction. Revenue has fallen for an incredible 11 consecutive years, from $416 million in 2000 to just $17.6 million in 2011. Many will point to BroadVision's $54.4 million in cash as the reason to buy, but I'd remind you that an erratic history of losses is going to make quick work of that cash balance, which is down $6.4 million year over year.

The real reason CEO Chen earned the gaffe award this week relates to a statement he made during the company's fourth-quarter report on Jan. 26:

"The Company noted that, during the past few weeks, there has been an unusually large amount of trading activity and price movement in its stock. The Company is not aware of any corporate developments that it believes would explain this unusual activity. ... Looking ahead at 2012, we will continue to execute our two-prong go-to-market strategy of focusing on channel partners via our Clearvale PaasPort program and on driving adoption via our Clearvale Social Enterprise Transformation (SET) program."

No corporate developments and a plan to stick to its corporate strategy ... yeah, that's worked really well for investors over the past decade, hasn't it?

To the corner, both of you
With the company's stock down 98% in the past 10 years, I think the worst thing CEO Chen can do is stick to its business plan, because it's clearly not working! It's also hilarious and sad that BroadVision was either unable to deduce the reason for its stock move or is unwilling to refute Lebed's far-fetched claims -- one of which is that BroadVision could have possible Facebook tie-ins. BroadVision is in survival mode -- it's as simple as that -- and neither Chen nor Lebed, or even the two added together, are even within arm's reach of being in touch with reality.

Relative to 25 industry peers, BroadVision is only one of two companies to show compounded annual revenue declines over the past five years. VeriSign (Nasdaq: VRSN  ) is the other, but it also sold off its Authentication Services division last year, so direct comparisons are tough to make. Most industry peers, like Nuance Communications (Nasdaq: NUAN  ) , have managed to grow revenue consistently. In Nuance's case, it has a voice-recognition supplier partnership with Apple to thank for its 28% compounded annual growth over the past five years. In short, BroadVision's CEO and Lebed have completely put the stock off limits, as far as I'm concerned.

Do you have a CEO you'd like to nominate for this dubious weekly-gaffe honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.

And if you'd like a surefire way to avoid investing in companies with questionable leadership practices, I invite you to download a copy of our latest special report, "11 Rock-Solid Dividend Stocks." This report contains a wide-array of companies and sectors that are likely to keep your best interests in mind regardless of whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is merciless when it comes to poking fun at dubious CEO antics. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Nuance Communications, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never wears a dunce cap.


Read/Post Comments (11) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 04, 2012, at 8:09 PM, sevenseaman wrote:

    Thank you for putting some common sense in this article.

    With the buzz that Lebed has created for his followers of a buy without risk approach you would think that Broadvision is a company with its issues, and past faults behind it. However Chen is still at the helm at a time where their main platform is not making them money to cover their other two revenue sources (K2 and QuickSilver) both of which has seen corporations leave in droves over the past decade.

    Even if ClearVale was to cover this revenue in the future, this doesn't make the company any cheaper when it is already trading at well over six times sales.

    Lebed can continue to pump nonsense and half truths to his followers but I hope the SEC investigates and halts this stock for the lack of disclosure especially by Broadvision themselves.

    As a previous CNBC segment had displayed that the company itself was having issues returning a simple call or response to the media. It used the quiet period as an excuse, although they did not state this back to CNBC. Again, maybe Lebed and Broadvision are a match made in heaven, as they both bend half truths and spin it into gold. A company that has declined revenue for over 10 YEARS means that something isn't working. Don't forget the number of reverse splits that bruised and destroyed investor sentiment.

  • Report this Comment On February 05, 2012, at 9:29 AM, montagou wrote:

    You may be right about Lebed's past and present.

    But your article does not impress me because:

    1) You base your judgement of Mr. Chen only on a comment he made to make his point on what was going on with the share price, without making any attempt to understand what the meaning of his comments.

    2) You criticize Lebed for his past, but you do not comment on any of the points made by Lebed on his analysis.

    3) You seem to have no idea of what is going on on the ESN (Enterprise Social Network) area and the prospects for that industry in the mid-term.

    4) You are speculating of what could happen to a share price based on what happened in the last 10 years... do you really think you can recommend a future winner while you keep looking through the rear view mirror?

    In summary, Lebedd may be just pumping a penny-stock.... but you don't seem to have an impressive understanding about this matter...

  • Report this Comment On February 05, 2012, at 10:20 AM, yngvai wrote:

    Montagou,

    Sean is not just basing his judgement on Chen's comment about the share price. He is also basing it on Chen wanting to stick with the same strategy despite the fact it obviously has not worked for years. The definition of insanity is doing the same thing over and over and expecting a different result.

    Many of the points Lebed make in his analysis are way off. In fact, Lebed makes it sound like BVSN is growing when in fact the opposite is happening. Lebed fails to mention the fact that BVSN's revenues have been continuing to decline. Lebed has bad math, trying to calculate a share price based on cash position but fails to consider any current liabilities. Yes, the company has no debt but it has other liabilities that must be considered. Lebed actually makes false statements about BVSN's competitors. Tim Sykes outlines more on this here:

    www.timothysykes.com/2012/01/exposing-convicted-penny-stock-...

    Lebed fails to mention who is "large shareholder" partner in the fine print actually is and how much this shareholder holds. Well, the people are Barry Konig and Michael Brauser who filed a 13D back in October. Konig and Brauser are Lebed's partner and both have been associated with other pump and dumps in the past, including SAGE.OB. If you do a google search for Konig and Brauser you will find all sorts of shady dealings and lawsuits. It is not a coincidence that Konig filed this in October and the stock promotion started in early December. Konig and Brauser control 250K shares.

    **********

    3) You seem to have no idea of what is going on on the ESN (Enterprise Social Network) area and the prospects for that industry in the mid-term.

    ***********

    That is irrelevant to a company that is still losing money with a bad business model. Lebed and co are simply taking advantage of a hot sector to pump low float garbage.

    *********

    do you really think you can recommend a future winner while you keep looking through the rear view mirror?

    **********

    The best predictor of future behavior is past behavior.

  • Report this Comment On February 05, 2012, at 11:27 AM, sevenseaman wrote:

    I'll just comment about your number 3 montagou, since it is the main question concerning Broadvision as a company:

    I like for you to look at their touted customer list:

    http://www.broadvision.com/en/customers_aeroxchange.php

    Then look at the list of the leading competitors:

    From Jive Software:

    http://www.jivesoftware.com/customers/featured/alcatel-lucen...

    From Lithium:

    http://www.lithium.com/

    Tell me the specific revenue that Broadvision has generated from ClearVale and ClearVale Express?

    And tell me if this revenue makes up for the revenue that it has lost from K2 and QuickSilver?

    Even Broadvision stated in their recent conference call that they are not focused on making profits at this cycle of their business. So after ten years of declining revenue and cash flow, do shareholders expect to wait another xx amount of years for it to see positive cash flow?

    For anyone to pay six times sales and potentially three times their DECLINING book value is over paying for these shares.

    Lets not forget that it is hyped by Lebed who has had a bad track record giving off half truths.

  • Report this Comment On February 05, 2012, at 1:01 PM, montagou wrote:

    Thank you "yngvai" and "sevenseaman" for your valuable inputs. I do consider your information is useful.

    However, I would recommend that you look carefully at what is going on in the ESN arena, take a close look at what Broadvision has in their portfolio and think about the trends that are developing right now.

    I do not know Lebed, but I do understand how strong the ESN trend is at the moment, and that Broadvision is indeed well positioned to take advantage of it (just as many other companies). I do think NIA's point about BVSN being lagging in perceived value -in fact- because their CEO and the company are not focusing on that objective at the moment.

    In summary: I don't think Lebed has the power to stimulate the kind of moves we are seeing in this stock, and I also understand that what happened regarding Facebook in personal relationships over the last few years is starting to happen in a large scale in all sort of organizations around the world. Try their product and you will probably start to see what I mean.

    Call it "Lebed's good luck" if you wish, but it's about the industry and not just about the numbers.

    Thanks anyway. Very useful input.

  • Report this Comment On February 05, 2012, at 1:24 PM, yngvai wrote:

    ******

    I don't think Lebed has the power to stimulate the kind of moves we are seeing in this stock,

    ********

    Then you underestimate the power of stock pumpers, Lebed, and the NIA with a low float stock.

    Check out their past pump OPTT. The promotion started at the beginning of October 2011. There was a sudden surge in volume and in less than a month the stock increased from just over $2 and peaking over $5.50.

    Now, BVSN has moved further for a number of reasons:

    1. It has a lower float than OPTT. This increases the chances of short squeezes and forced buy-ins. In fact, there have been a lot of forced buy-ins on this stock as indicated by the sudden gaps at the market open (forced buy-ins usually happen right at the market open).

    2. The pump was timed perfectly with the social media and facebook hype, which added fuel to the pump fire.

    I fail to see where BVSN is well positioned to take advantage of anything as their revenues are continuing to decline, and they are not even close to being able to stand with their competitors. This is nothing more than a low float stock running on short squeezes, constant pumps, and sector hype.

  • Report this Comment On February 05, 2012, at 1:27 PM, yngvai wrote:

    To give you an idea of just how far stock pumps can go, I suggest you look at LEXG's stock chart from March 18th to May 2011. It went from 7 cents per share to a high of $10.68 before crashing.

    LEXG was a paid hard mailer promotion. The promo was around $3 million.

    It is amazing just how far stock pumps can really go. Don't underestimate the capacity for stock pumpers to drive a stock price. But just remember that it is a house of cards and will not hold up.

  • Report this Comment On February 05, 2012, at 4:08 PM, sevenseaman wrote:

    montagou:

    I can understand your excitement with social media for the enterprise. However could you tell me why Broadvision is well positioned? For the past 10 years they have had continued decline in revenue. If they were able to forecast and manage their company they wouldn't have experience such as sharp decline in the number of customers, and revenue over the before mentioned time horizon.

    Social media for the enterprise has been around for a while. Take Chatter by SalesForce for example. SalesForce continues to push the platform however in terms of scale they have not capture much of the marketplace. And SalesForce has deep pockets. How is a company such as Broadvision suppose to overtake the giants with their small cash position. If they were to invest more in R&D (which they need to do because they are playing catch up to the leaders in the space Jive & Lithium) the cash will continue to decline without cash flow. If ClearVale fails then they will have very limited revenue streams, especially with K2 and QuickSilver corporate customers leaving in droves. That cash cushion will get wiped out.

    Also its all about the ecosystems. Apple has one, Oracle has one, SalesForce has one, IBM has one. Where does this leave the likes of Broadvision, when their customers for their legacy products are leaving for other companies WHO MAY ALSO join the other company's platform.

    And if you like to know about one of the all-time bust by Lebed here is a recap, the end result is this stock trading at 0.00 today. The guy has the ego the size of Mount Rushmore when the only intelligent aspect about him is that he uses the medium that he has access to hype stocks. However he is not licensed and shouldn't be touting stocks he has no reason to give "suggestions" to purchase. That is misleading along with certain half truths about the company.

    http://www.collegestock.com/blog/jonathan-lebed-and-ron-dura...

  • Report this Comment On February 06, 2012, at 4:38 AM, montagou wrote:

    Sevenseaman,

    Again, I do not dispute your knowledge of the system and of Lebed's operations.

    And I do not dispute either that this BV thing may have started as one more pup-and-dump chapter.

    However, in my view, what Broadvision got right is the viral strategy they are pursuing, which is working very well for Yammer. But Yammer is not a "large-accounts" firm, and Broadvision is (they have been serving companies for a long while).

    Here is where I see the opportunity for BV. The viral growth (and its future acceleration) of ESN is not in doubt from my point of view. What counts here is to have the right product and the right strategy (and a structure that can serve all types of customers). I think BV is in a good position and I think Lebed is right (not because he is a good guy, but because he got it right indeed this time!).

    Ok. This could all prove to be wrong in the future. Should that be the case, I will come back to this blog and acknowledge that.

    All I can say at this moment is that we have implemented Clearvale in our organization and it makes a world of difference (and it took us only 10 minutes, literally!). I am not exaggerating if I say that: what e-mail did to the fax machine in the 90's is what ESN is about to do to email in the 10's. Try it and you will see.

    If you take that to be true, all these companies (not only BV) will benefit greatly from this. In particular BV has a very interesting mix of product, experience, and strategy (and some cash to execute it).

    Time will tell...

    PS: See the action last week on JIVE... is that Lebed's magic?.... I would not be sure

  • Report this Comment On March 07, 2012, at 11:27 AM, shakazoid wrote:

    Montagou

    I hope you are not here to pump the BVSN but if you are an investor that got into this piece of putrid crap recently then kindly take my advice to get to out of it . The initial uptrend of this stock this year started a few days after they announced that they won the bid to provide some communication crap for the olympics in London. I got curiious when I saw that each day within that week it was going up like an Apollo rocket and was daily highest % gainer. I searched everywhere online trying to see why and to get more info about the sock but could not find anything that will account for the move. The day I almost purchased it was @ lik2 $28 in the opening of the market, went to the bathroom to take a shower and it was up by about 12 or 14 when i came out which is incredibly High for a stock trading in the 20s without anything new. . Anyway by the end of the day it had lost more than it gained, glad I never got in cos this is a classic pump & dump. Stay away from it.

  • Report this Comment On March 07, 2012, at 1:10 PM, mendex wrote:

    Whatch bvsn to sky rocket right after the London Summit!

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