Thursday, January 05, 2006
The Most Interesting Press Release You Didn’t See
“During the Christmas season, certain online search engine costs increased significantly over the prior year, and as such we made the decision not to pursue the resulting high cost order volume.”
That comment was contained in the long first paragraph of a press release from FTD Group, the flower delivery people, that was issued at 5:54 E.S.T. last Thursday night, when almost nobody was around to care.
Now, I don’t follow FTD closely, but its business model depends more than you might guess on internet searches—after all, somebody searching for “flowers” on Google is probably not doing deep scientific research into botany. They are very likely a guy, running late, kicking himself for putting it off until the last minute.
Indeed, Google the word “flowers” and you will find an FTD ad, third from the top:
Get it There Today. Fresh Flowers
Satisfaction Guaranteed-Order Now!
What is also interesting about the FTD release is that the company states that despite a pull-back in online ad spend and the resulting revenue shortfall, the company will still hit its EBITDA and earnings targets:
“As a result, despite this slight decline in order volume for the Christmas season, we are reiterating our EBITDA and EPS targets for the year.”
This suggests that at least in the floral delivery category of online search, and assuming FTD is not just blaming an innocent bystander like some companies we could imagine, the marginal cost of a new customer has reached parity with the marginal profit from that customer. Which is not something anybody expected happening any time soon.
So what is FTD doing about this turn of events?
“…we have begun making additional investments in our marketing staff to help build a more diversified marketing portfolio. We believe these initiatives will enable us to regain our competitive position in the marketplace and continue to deliver long term bottom line results for our shareholders.”
I’m not sure what it means to build “a more diversified marketing portfolio.” 30 second spots on Howard Stern? Sandwich boards in Times Square?
Whatever it means, the fact that FTD says the cost of using “certain online search engine(s)” has increased so significantly that the company cut back its online marketing is worth investigating.
Therefore, the question before the house is this: is there any indication from anybody else who uses online search that online search is no longer economic in any field outside the flower delivery business at FTD?
Informed responses are welcome.
I Am Not Making This Up
© 2005 Jeff Matthews
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.
Posted by Jeff Matthews at 7:53 AM