This Ugly Penny Stock Could Make You Money In the Long Run 

I lost track of Qurate Retail’s (QRTEA) Home Shopping Network (HSN) business long before it became a part of the retail holding company in July 2017. 

I followed HSN because of former CEO Mindy Grossman, who became the shopping channel’s chief executive in 2008 and proceeded to grow HSN into a business with $4 billion in sales by the time she stepped down in April 2017 to become CEO of what is now WW International Inc. (WW). 

In October 2021, Grossman announced she would step down as WW International’s CEO at the end of its first quarter. She ultimately left WW on March 18.  

Not too long after Grossman left HSN for WW, it was acquired by Qurate’s predecessor, Liberty Interactive Group, for $2.6 billion, including the assumption of debt. That brought the country’s two top shopping channels under one roof. In October 2018, HSN was combined with QVC’s U.S. business to form QXH. Together, they generated $8.5 billion in annual revenue.

When the combination occurred, Qurate’s shares traded around $22, down from a 2018 high near $30, but a considerable distance from $5 and penny-stock status. As I write this, QRTEA is trading around $4.25, down 66% over the past year and within pennies of its 52-week low. 

You turn your focus to other things and in the span of fewer than four years, Qurate’s business goes to the dogs. 

So, why would I waste my words and energy explaining why this particular retail stock is worth considering? Good question. Here’s my answer. 

Qurate Still Makes Decent Money

It’s amazing to me that a stock as dubious as Digital World Acquisition Corp. (DWAC), the special purpose acquisition company (SPAC) trying to merge with Trump Media and Technology Group, Donald Trump’s nascent organization set up to launch Truth Social, is trading at $44 a share with no revenues or profits. 

Meanwhile, Qurate generated adjusted operating income before depreciation and amortization (OIBDA) in 2021 of $2.08 billion on $14.04 billion in revenue. Those aren’t Apple (AAPL) numbers, but they’re reasonably good relative to DWAC or some other stocks floating around the meme world. 

But, let’s not sugarcoat things. QXH accounts for 59% of Qurate’s total revenue and 69% of its OIBDA. As it goes, Qurate goes. And it’s not growing. Sales were down 3% from 2020. 

However, the business isn’t going away anytime soon. It’s got a 17% OIBDA margin. If that sticks, shareholders can breathe easier knowing that the QXH business is likely worth more than Qurate’s current market cap of $1.6 billion, which means you’re getting all its other brands for nothing.

The Sum of the Parts Stops at Zulily

Qurate’s predecessor, Liberty Interactive, paid $2.4 billion in cash and stock for the online flash sale shopping site in 2015. In 2014, Zulily had $1.2 billion in revenue and an operating profit of $15.7 million. In 2021, it had $1.45 billion in sales and a $12 million OIBDA loss. 

So, in the six years that Liberty/Qurate have owned it, they’ve been unable to make money from it. It doesn’t help when it’s constantly taking impairment charges. In 2021, it took $363 million in non-cash impairment charges and $1 billion in 2019. It’s safe to say it didn’t get its money’s worth buying Zulily for so much in 2015. 

However, help could be on the way. On March 15, Qurate announced the hiring of Terry Boyle as Zulily’s CEO. Boyle has significant only experience at startups and Nordstrom (JWN) so there’s reason to be cautiously optimistic.   

In addition to the Zulily woes, Qurate CEO David Rawlinson II, who only took the top job last July, is in the middle of restructuring the QXH business so both QVC and HSN can better engage and serve their respective audiences. While nothing has been said about QXH being killed off, it certainly appears that the 2018 merger of the two shopping channel’s U.S. businesses didn’t generate the kind of growth Qurate was looking for. 

So, there’s no question there are a lot of balls very much up in the air right now. That, more than anything explains why it’s down 46% in 2022. 

The Glass Is Half Full

Qurate has a page on its website that lists its assets as of Jan. 31. The 100% interest in Zulily and QVC Inc. -- which owns QVC U.S., QVC International, and HSN -- generates 88% of its sales.

It also owns the following:

• 3.3% of NetBase Solutions, a private company that provides artificial intelligence-powered consumer and market intelligence, 
• 80% of the Liberty Technology Venture Capital II LLC investment fund. It invests in 
• Israeli technology companies, 
• Venture investments in technology and clean energy,
• A 15.9% interest in Comscore (SCOR), which has a market cap of around $190 million, and 
• 100% of Cornerstone Brands, a collection of four retail brands, including Frontgate, Ballard Designs, Garnet Hill, and Grandin Road. Cornerstone was acquired by IAC/Interactive (IAC), HSN’s former parent, in March 2005 for $720 million or 1x sales. Today, Cornerstone has $1.24 billion in sales, and OIBDA of $137 million, 46% higher than a year earlier. Even at the same multiple, Cornerstone ought to be worth $1.24 billion, or 78% of Qurate’s market cap. 

Put it all together and Qurate has got to be worth more than $4.25 a share. I’d say double that or more.  
No risk, no reward.