PSA Likely to be Sold - Then Out of Business? Part 3
 

Update to the prior 2 posts listed here.

http://www.net54baseball.com/showthr...t=psa+business

http://www.net54baseball.com/showthr...t=psa+business

I debated whether to continue with a Part 3, but recent developments deserve comment. First, an update on PSA activity. Quarter 3 which ended March 31, 2009 saw submittals drop to 273,000 units from 292,300 the prior quarter. The last 4 quarters in order have gone from 351,500 to 301,700 to 292,300 to 273,000 units. Not a healthy trend. PSA operating income the same period has gone from $330K to $345K to $258K to $187K. This does not include PSA's share of SG&A which, if applied based on revenue, would be roughly $350K and makes the PSA division clearly unprofitable.

Their corporate owner, Collector's Universe, has made some significant moves in the last few months. They sold off a few divisions including the ones that were clearly losers. So the main divisions that remain are coins (70%), trading cards (25%), and other (5%) which I believe is mostly stamps. Overall company results for the most recent quarter did show a profit of $700K - the first profit in a long time. This occurred despite a 10% decrease in revenue from the prior year. In a nutshell, they were able to cut back on expenses by 20% to overcome the 10% revenue drop.

Nothing really unusual here - most companies cut expenses when revenue drops. The question remains, is the revenue drop temporary based on the economy or systematic of better competition and/or a drop in the "trust" factor? Also, the company was performing poorly last year as evidenced by the lack of pricing updates to the SMR and poor grading standards. Does the cut in expenses (people) make this worse? Time will tell. I'll not comment on this.

But the recent development I wanted to focus on occurred last week. Collector's Universe announced a 1.75 million share dutch auction buyback at between $5.00 to $5.40 per share. This will cost the company between $9 - $10 million. They only have $20 million cash left. The reason for the buyback given by the company is to increase shareholder value. But stock buybacks rarely accomplish this. It is my opinion that the buyback is to protect executive employment. The poison pill they enacted didn't go over too well and reducing cash makes it less likely for a company to buy Collector's Universe to take private.

But what is really interesting is that while you are guaranteed to get $5.00 or more per share, the stock price has closed at $4.90 the last 3 days. How does that happen? My guess is that more than 1.75 million shares are going to be tendered and if that happens you will only be able to sell part of your shares at that price. Better to sell all of your shares below $5.00 than part of them above $5.00. Because after the buyback occurs, and the company has less cash, and there are no more heavy buyers, who know what could happen. Not a lot of shareholder confidence. And many shareholders are insiders. Hmmm.

The above post is a load of crap if you ask me. They obviously bought back the shares because they held massive cash and the share price was cheap. I seriously doubt Collector's Universe would sell PSA, especially if they have already turned a profit. Of course submissions are down; part of it is the recession. Cards are worth less, so it's less worthwhile to submit. They still hold $20mil cash which is a massive amount of cash, especially considering they are making a profit. Basically the above post is just spreading garbage rumors against PSA - add it to the other PSA hate-mongers on this board. Peace.

The coin side of the business seems to be their main source of revenue. It was my understanding that a coin magnate bought a chunk of the companies available stock?

I have no horses in PSA as they are not my grader of choice. I don't really have any strong desire to see them fail and I don't really care if they succeed.

Although, I do see SGC really asserting itself as the king of prewar. Since that is where the bulk of the "money" collectors in this hobby are. That probably doesn't bode too well for PSA.

I guess I should clarify. The cash buyback will leave them with $10 million cash. And, including the most recent profitable quarter, they have lost over $33 million in the last 2 years. Yes, $27 million was impairment on the divisions just sold, but $6 million was operating losses. There is not a lot of room for error in a down economy. Selling PSA may give them a better chance at success. And the main owners and founders are primarily coin guys.

Is there a chance that the normal progression of things would hold that at some point submissions of cards would fall as more and more of the existing inventory of cards has been graded? There are obviously resubmits, etc. I don't know what % of PSA's business is newer cards, but if it of any significance at all - there are considerably fewer new cards being manufactured currently than in the recent past as well. I have no ax to grind or bone to pick. I am not sure it would benefit anymore for them to fall by the wayside.

What
 

Your kidding me with this right. There are a crap ton of new cards. There are not as many companies but Upper deck puts out a zillion sets.

Pick up a price guide and look at the modern section its hard to figure what is what.

I have barely graded much of anything with PSA in 2 years, partly becuase they raised their bulk prices and partly because they don't offer much value to me via the product or the customer service.

James G

No
 

No, I'm not kidding. I didn't say there wasn;t God's Plenty of new stuff out there. I said there was not as much as there used to be.

PSA cards boast some of the poorest grading and overvalued vintage out there. I have no clue why they bring in so much money on sales compared to SGC and Beckett graded cards. I never touch PSA anymore because I have had horrible luck in crossover. Buy a grade 4 and end up with a 2-3. To many times. I say shape up or ship out!!!!!!!!!!!:mad:

On a good note though if they do sell and end up revamping its card side I could see the positives in the industry. It's hard to see any company fail but its not you fault or mine that this happens. Best example of ignorance on their behalf "The Famed Wagner". (and about 90% of the vintage I bought in the past graded from them)(my luck maybe:confused:)

The decrease in submissions seems in line given the current economic condition and although it's a decrease, 90-100,000 per month seems like a lot of submissions to walk away from. Does anyone have an idea of what percentage of the total card grading market this represents?

Not sure what to read into the stock repurchase.

edited for typo

Not to pile on, but I guess I am. I have never received a bump on a PSA->SGC T205 crossover. Of the 25 or so I have submitted 10 or so did not not cross at equivalent grade.

I disagree
 

I disagree because I am grading more and more cards with SGC then ever, so my submissions aren't down they just aren't going to PSA anymore.

And if I didn't make it clear in my earlier post, I think there is just as much product out there now and 5-10 years ago. There might even be more now.

James G

Does anyone know if sgc submissions are also down during that same time frame?

I would just add that it's my gut feel that only a small percentage of grading submissions are pre-war and I wouldn't be surprised if those submissions are stable, but it's the more recent stuff that has really taken a hit in value that is causing the reduction in submissions.

Could the buyback be a way for large shareholders to pull their money out of the company without having to dump stock in a thin market? Nah

No way to know. SGC is a private company and doesn't have to release any numbers.

They do seem to be quite busy though from the sounds of things.

Maybe the buyback is to appease Disney the largest shareholder that was demanding them to split up the company.

I was told by an employee that they were off to their best year so far and that was not long ago and have no reason to not believe them. I know everytime I talk to Brian or Michael they are just slammed which to me is a good sign, plenty of business to the point of needing to hire more people.

Brian did mention on the sgc boards a month or so ago that the previous quarter had been a very good quarter in regards to submissions.

PSA going down ?
 

PSA needs to survive on modern only cards - for example, how many more ungraded raw T206 HOFers are sitting out there - really folks ? not many.

And sorry to say, but the PSA set registry is the single most important thing driving prices above and beyond the other reputable graders.

If PSA goes down, what are the speculations on the Set Registry thing?

Other than that, PSA prices will always be near the top of the pricing world. So what if PSA goes down, SGC will scoop up the business - is that bad?

steve

Since you bring it up, I don't see any reason why anyone else couldn't start their own Set Registry website and use PSA and SGC grades as their criteria. Heck you can include GAI and BVG if you'd like. But exclude CSA, PRO, etc.

As long as you don't advertise which grading companies you use, it should be legal. Similar to Fantasy leagues using MLB statistics. If your site is more user-friendly and doesn't require membership, you should get more hits that the others combined. Plus if a company goes out of business, the Registry will continue.

Eric B

More then you'd think
 

"for example, how many more ungraded raw T206 HOFers are sitting out there - really folks ? "

I would honestly say with the exception of maybe the big 4, There are still way more raw ones out there then graded.

I used to use PSA for everything but after being treated poorly time and time again by their customer service, I stopped using them.

I guess I have been treated fairly by them. If a problem ever happened or if I had a question, I would email Joe Orlando and have an answer in usually less than 24 hours.