An Upcoming Spinoff That Smells of Roses

As is often mentioned, spinoffs tend to create market-beating opportunities for those who bother to pay attention to them. The idea of a spinoff, for most companies, is either to shed some assets to bulk up the balance sheet, or to illuminate value somewhere in the parent company. The funny thing is, it's often the spun-off company whose value is brought to light. One likely example is the upcoming United Online (NASDAQ: UNTD  ) spinoff. The newly formed company will be composed of FTD -- a Web-based florist and gift shop. Similar to its peers in the space, FTD is a growing, cash-generating business that leverages the scale of local florists across the world into one cohesive operation. The best part is, the offering price may substantially undervalue the stock.

The deal
The parent company in this special situation, United Online, is a sort of holding company for Web-based technology firms. The company owns NetZero and Juno -- a dial-up Internet service you may remember from the early days of Web. That may sound unappetizing, but management did not pour money into this segment in recent years and, instead, milked its declining yet substantial cash flows. While this is a sign of effective, logical management, it is not the focus of this idea.

United Online bought FTD back in August 2008. For those unfamiliar with it, it is a very similar business to 1-800-Flowers.com (NASDAQ: FLWS  ) . FTD, though, in what is a generally unappealing and highly competitive industry, is actually a very strong business, highlighted by a close-to-negative or negative working capital business model (i.e., asset-light, cash-flow heavy) with a wide moat.

In 2012, FTD accounted for 70% of United Online's consolidated revenues -- roughly $613 million. The company earned $87 million in OIBDA (a number similar to EBITDA, but which does not factor in non-operating income), up from $83.5 million in the year prior. These numbers are a result of increased year-over-year order numbers -- 7,020 from 6,628 in 2011.

For a commodity-like business such as this, marketing spend is a metric to keep an eye on. FTD has to continually differentiate itself by having a strong brand presence. Over the same period of time (2010-2012) that net income grew roughly 14%, marketing spend increased just 11.7% , suggesting that the company's sales and marketing efforts are providing solid returns on capital.

Why it may be a steal
United Online currently trades at 10.2 times projected one-year earnings. If FTD's pricing ends up similar, that will come as a sharp discount to 1-800-Flowers, which trades at nearly 18 times forward earnings. Also to keep in mind, 1-800-Flowers' growth is driven mainly by its gift baskets, not flowers. Average order value was under that of FTD's this past quarter at $57.37 (compared to more than $60 for FTD). If FTD decides to put the pedal to the metal on its gift basket business, as its competitor has, we could see even greater growth numbers than currently projected.

Both 1-800-Flowers and FTD are slated to grow, but FTD may give investors a more appealing opportunity, with multiple correction coupled with earnings growth.

More from The Motley Fool
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2354329, ~/Articles/ArticleHandler.aspx, 10/1/2014 8:26:28 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 17,042.90 -28.32 -0.17%
S&P 500 1,972.29 -5.51 -0.28%
NASD 4,493.39 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2014 3:59 PM
UNTD $10.95 Down -0.34 -3.01%
United Online, Inc… CAPS Rating: ****
FLWS $7.19 Down +0.00 +0.00%
1-800-FLOWERS.COM,… CAPS Rating: **

Advertisement