Did a Blog cause RM37 million losses to StemLife?

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Oct 03 2007
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Behold the power of blog. If used wisely by business communities it could enhance the customer relationship and indirectly increase revenue as the substance of loyalty and trust would be cultivated. But if somehow a blog was written in such a way that it could bring disaster to your business, then you might have sleepless nights. More so if the author claimed to be your former employee and he / she could tell to the public information pertaining to the insiders as if it’s real.

Real or not, it appears that StemLife Berhad (KLSE: STEMLFE, stock-code 0137), the specialist and the largest stem-cell bank provider in Malaysia that saw its’ stock price skyrocket to RM5.80 before consolidated to the current RM4.28 per share is not taking the blog’s article lightly. Hit where it hurts the most (obviously the shareholders’ pocket) and it will retaliate. And if you wish to read how you could have made more than 400 percent profit investing stocks within less than one year, StemLife is one good example (stocks being fried aside).

StemLife adopting bad business practices?

Now according to this individual claiming to be a former employee of StemLife, he resigned because he / she Infected and Clean StemCellscouldn’t stand all the lies and nonsense that was and still going on – bad business practices such as storing infected cord blood with clean samples. That’s what greets readers who managed to find the blog, not so difficult if you googled “10 Reasons Why You Shouldn’t Use Co. X” as reported by Business Times. It also mentioned that a Singaporean cord blood service provider, which had initially invested in StemLife, had sold its shares in 2003 after finding out the latter’s alleged practices.

And today StemLife has filed police report to clear its name. Assuming that it was true that CordLife Ltd was the party mentioned in the blog that sold off its 20% shares in 2003, its CEO Steven Fang only mentioned that the company sold out due to difference of opinion on strategic direction in business and operations, after he was contacted by Business Times. Interestingly while StemLife’s managing director Sharon Low was mentioned as the operations director for CordLife Pte Ltd., Steven Fang said one of StemLife’s founders was only a staff of CordLife.

How StemLife competitors won an easy battle?

However that’s not important. What are important are the damages that have been done to the reputation of StemLife and potentially it’s bottom-line. Just how critical was the havoc? FinanceTwitter happened to have the luxury of time in visiting some of the booths during the recent Baby-Fair at MidValley recently. It was crowded alright and amongst the booths which were aggressively courting the customers were the major players in the stem-cells storage – StemLife, CyroCord and CellSafe International (CSI). Basically just like buying laptops computers all the brands were trying to push their offering to you. Seriously, the packages offered from three of them are almost the same. The only differences were the discounts, free-gifts and lucky draws depending on the package you’re interested.

Of course StemLife being the listed company and the proudest of all offered the least incentive but not before throwing something which looks weird. You see, if you wish to store your baby’s stemcells you’ve the choice of either store it in bag or vials. You can debate until the cows come back on which method is better but in short StemLife prefers bags and threw in a very low price for you if you preferred vials. CyroCord for some reason only offered vials while CSI offered both bags and vials. But how did the two competitors beat StemLife in closing the deals?

10 Reasons not to use Co XSimple – by giving potential customers the website of the “10 Reasons Why You Shouldn’t Use Co. X” blog. If you still couldn’t find the blog, it’s hosted under wordpress blog platform and the site name is the same as StemLife minus the “f”. I’ve to admit the author was creative with the naming of the blog of which I bet he / she spent some time thinking of it. So far based on the statistic from the blog, it has attracted more than 15,000 hits since. While one concreate reason would scare the shit out of me, just think of the potential reputation damage to a listed company if there’re 10-reasons – it will definitely scare a lot of shits out of potential customers.

How severe was the damage?

Assuming only 50% of the readers are potential customers that would sign-up with StemLife’s top-package which is about RM5000 (for 20-years storage). That’s a whopping RM37.5 million in potential losses in revenue. And based on the 50% profit margin as the guideline (as published in StemLife’s IPO documents) the company had just lost RM18.75 million in pure profit. No wonder StemLife is crying high and low and is considering taking legal action. However if StemLife is clean, there’s nothing to be afraid of. After all, it’s just a blog, unless what the blog claimed was true.
StemLife Stock ChartThe multi-million question – did the blog actually caused business losses to StemLife? I believe so but it’s hard to quantify the dollars and cents. The rumor in the market was that some shareholders within StemLife itself were selling when the stock reached RM5.80 in early August. Hence the value losses could be due to both factors – the blog as well as internal selling.

And talk about latest shareholders changes, it appears Goldman Sachs International had been busy acquiring StemLife’s shares to the current 9.03% stake or 14,894,000 shares. From what FinanceTwitter knows, there would be a total of 7 players in the stemcell market in 2008. While the competition could spell tougher business with potentially lower profit margin, a lower package-price could attract more customers provided the right awareness and marketing are launched. Heck, for all you know Sharon could be on her way to cash-out
with the emergence of new strategic shareholder(s).

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