Fundies Capital: Lifelock Inc (NYSE:LOCK): arguing against the short case and showing why the business is misunderstood and undervalued

By Harvest Exchange

From a presentation in late June regarding Lifelock Inc (NYSE:LOCK): arguing against the short case and showing why the business is misunderstood and undervalued.

LifeLock

 

LifeLock: Case Of The False Identity

Sells consumer identity theft protection services via subscription

$1.25B market cap – 97.7mm shares at $12.70

$191mm in cash, 0 debt

$1,050mm Enterprise Value

3.22mm paying subs as of 3/31/2014

I Am Long ? The “Bad Stuff” Is Priced In

Shady characters run this joint

  • Co-Founder is no longer affiliated with the company, and many new execs hired
  • Many anchor on the FTC infraction in 2010, though it doesn’t define the company, as it doesn’t define other companies with past infractions

“Industry sources contend that [the company’s] basic service is nearly worthless”

  • The product has changed from primitive beginnings. Proprietary data is valuable. Finally, consumers pay for many products in which others don’t see value
  • Best?in?class churn shows Lifelock Inc (NYSE:LOCK) customers stick around once they start

“The entire industry has become commoditized”

  • Pricing per subscriber has been increasing at a very healthy clip
  • While many offer seemingly similar products, one is taking the lion’s share of new subscribers

Deutsche Bank analyst estimates for 2017 are unachievable

  • Analyst estimates are largely noise; they don’t look at what matters
  • All that really matters are the # of subs at saturation and the value of each sub, something not addressed in short thesis

A Better Cast Of Characters

  • Skepticismregarding the management team
    • Robert Maynard Jr.
      • Two scintillating articles in the Phoenix New Times that were published in May 2007 and May 2010
      • He was absolutely a shady character – but he left the company 7 years ago, in June 2007
    • FTC settlement regarding deceptive product claims was in March of 2010
  • A new group now runs the show post IPO (October 2012)
    • CEO Todd Davis is still there
    • Two senior executives joined the team from the ID Analytics purchase in March 2012
    • Many hires of senior executives in the last 2 years significantly bolster the management team, and distance LifeLock from its past

LifeLock: Arguing Against the Short Case by Harvest

Harvest