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Until recently, I ignored the whole social media thing. I just didn't want to bother having to keep another site active. Keeping my blog current was and is challenging enough. Much to my surprise, however, I found I enjoy Twitter.

So what's so special about Twitter? My answer is that it's fast and light. When I spot something interesting, I can quickly blast off a tweet, and I'm done. The vast majority of my tweets are simply articles that I have found interesting. Occasionally, I respond to someone else's question or concern. Oddly enough—at least to me—I actually read a substantial number of tweets from those that I follow. When I fire up TweetDeck, I scroll back in time and quickly review everyone's posts.

I follow an eclectic mix people. Most are related in some way to financial markets. Some are related to photography. A few are writers, and the rest are just a general assortment. Now that I am following more people than I can keep up with, I am reluctant to follow more. In fact, I probably should prune my list to reduce the noise level. For those that do want to follow me on Twitter, you can find add me @Stecyk. As mentioned, I am following enough people now, so I am unlikely to reciprocate.

Switching emphasis, I will provide a list of some of the recent articles that I highlighted in my tweets. Please note that Financial Times, Wall Street Journal, and Barron's are all paid subscription sites. You might need to be a subscriber to see their articles. The New York Times requires a free registration.

• Financial Times Microsoft in free software assault on Google;
• The New York Times Exxon to Invest Millions to Make Fuel From Algae;
• The New York Times Updates to Google Voice;
• King World News Bill Fleckenstein podcast;
• King World News Jim Rogers podcast;
• The Wall Street Journal One Small Step for Man, One Giant Mess in the Spacecraft (be sure to view the Interactives;
• The New York Times Driven To Distraction: Drivers and Legislators Dismiss Cellphone Risks; and
• Barron's Gold Still Has That Glitter.

On 18 July 2009, I enjoyed a 50 kms (30 mi) bike ride through the Weaselhead Park area and onto Fish Creek Park. I was looking west when I took the picture above from a bridge in the Weaselhead area. If you click on the picture, you will be taken to Flickr where you can see more pictures.

Ana Avramovic is a full-time finance professional and part-time model—that is, she models as a creative hobby. We had an opportunity to meet in advance of our photoshoot. If it is convenient, I like to meet potential models for coffee in advance of a photoshoot. This provides an opportunity for us to meet each other and confirm that we want to go ahead with the photoshoot. During our coffee meeting, we discussed our backgrounds briefly. I thoroughly enjoyed meeting Ana and learned that we shared some similarities in our backgrounds but also some vast differences. Our similarities were interesting because they allowed us to form common understandings and shared experiences. However, I found our vast differences more interesting because I was able to ask questions and learn more about her character. If you ever have an opportunity to meet Ana, I am confident that she will impress you with her intelligence and friendliness.

On Thursday, 4 June 2009 we met at Heritage Park for our photoshoot. Unbeknownst to us, this was the same day that the park was hosting seven thousand children as part of the AMA school patrol. The first sign that things were different was there were lots of police in the parking lots directing traffic and there were lots of school buses.

Once we arrived at the park and got set-up, we were notified that we would not be allowed to shoot. There were too many children wondering about. Ana had already changed and we were getting ready to leave when a senior manager approached us. He asked a few questions, with two important questions: First, Were we professionals or shooting for a magazine or something similar? And second, Didn't we know about the kids' day at the park?

We replied, "No, we are just amateurs looking to have some fun modeling and photographing. And we were surprised by all the children that were present." Luckily, he reversed the prior decision requiring us to abandon our photoshoot, and Ana changed once again. We then began our photoshoot.

I am grateful to the manager at Heritage Park who allowed us to stay. I can understand the Heritage Park's dilemma: on one hand, they want to ensure the privacy and safety of the children; and on the other hand, the park should be accessible and open to all. Sometimes these two objectives collide as they did on fourth of June. Ana and I did our reasonable best to avoid the children. In the early part of the shoot, the kids were listening out on the lawn to the grownups drone on. And after the lawn meeting ended and the kids dispersed around the park, we generally tried to find areas where it was quieter.

In the photograph above, we found that just as we set up, the kids and accompanying adults started filling the area around Wainwright Hotel. So we didn't stay and photograph here as long as we would have liked. So we just moved from location to location.

Heritage Park is a great location for kids to enjoy themselves. Even though we had make allowances by working around the kids, we enjoyed ourselves and had a productive day. And again, I am grateful to the manager who trusted us and allowed us to stay.

My picture of Ana is hosted at Flickr. If you click on the picture, you will be taken to Flickr where you can see more pictures.

Today, Canada celebrates its 142nd anniversary of confederation. I hope all my fellow Canadians have a terrific Canada Day.

I took this picture of a Canadian Girl in 2007 during Canada Day celebrations at Prince's Island in Calgary, Alberta. If you click on my picture, you will be taken to my Flickr site where you can see more of my pictures.

Those of you who use a credit card—and who doesn't these days—must read Charles Duhigg's terrific New York Times article titled What Does Your Credit-Card Company Know About You? (free registration might be required). And for those of us who like to think about how credit cards might influence the economy, here's an interesting quote from the article:

If a credit-card company detects unsettling patterns, it might start cutting credit lines, raising interest rates or accelerating repayment schedules. (Companies are expected to withdraw $2.7 trillion of credit by the end of 2010, according to a March report from the Meredith Whitney Advisory Group, a banking-analyst firm.)

This smokey and hazy photograph of the Bow River in Banff National Park was taken in 2006 when there was a large forest fire in Washington state. The picture is hosted at Flickr. If you click on the picture, you will be taken to where you can view a larger version and see more of my pictures.

As preparation for my review of first quarter 2009 results of Blue Nile, Inc. (NILE), you might wish to read Blue Nile First Quarter 2009 Financial Results, my synopsis of the Blue Nile's fourth quarter 2008 results, and Eric Savitz's article at Seeking Alpha.

Prior to the release of the fourth quarter results, analysts had the following expectations:

The company's results were ahead of expectations with revenue at $62.4 million and earnings of $0.13 per diluted share. According to Yahoo Finance, analysts have revised their estimates as follows:

I listened to Blue Nile's conference and thought it was positive. Using Seeking Alpha's transcript, I will highlight key items in point form.

• Sales declined 11.4% for Q1, which is better than earlier indications mentioned last conference call of about a 15%.
• Bridal jewelry category, which includes diamond engagement rings and wedding bands performed better than average overall sales and made up a larger proportion of the overall sales than it was last year.
• High cost jewelry exceeding $25,000 was most affected by the downturn.
• Diane Irvine, President and CEO indicated that the company performed well, "Our ability to achieve EBITDA growth from a year ago despite a decline in sales is significant and it was driven by our focus on profitability, specifically the expansion in gross margins and a laser focus on costs."
• Company expects to have strong positive full year cash flow exceeding $11.8 million, which is the trailing 12 month cash flow.
• Inventory was down 17% year on year.
• Company has no debt.
• Company is seeing signs of improvement customer sentiment and overall retail sales, though the company remains cautious in its near term outlook. However, the company has a much stronger positive outlook for the longer term.
• Jewelry industry remains in chaos and this is presenting both challenges and opportunities. The challenges stem from other jewelers exiting the business and dumping their inventory onto the marketplace. The opportunity, of course, is that Blue Nile is strong financially and should capture more market share by providing its customers with better value and better customer service.
• Diamond prices have declined 20% from market highs and are 5% to 10% below prices one year ago.
  • Unlike the brick and mortar jewelers that carry about one year's worth of inventory, Blue Nile is a just-in-time retail operation. Thus, it is able to pass along the majority costs savings of decreased diamond prices to customers. This action helps to increase market share and provide a slight boost to gross margins. Recall that Blue Nile was able to offer customers better value because of its lower cost structure. Reduced diamond prices further enhances its competitive position.
• The website will undergo a major revision later this year.
• Although international sales are small today, international growth continues to look exciting with expansion beyond Canada, the UK, and Ireland. Blue Nile now offers shipping to over 40 markets worldwide.
  • Customers can purchase goods from Blue Nile using their own local currency, which will help provide comfort and security.
• Orders were down 13% from a year ago; however, average order value was up 1.5% to $1662. As mentioned, bridal jewelry composed a larger proportion of the overall mix.
• Gross profit was $13.2 million and gross margin rose from 19.8% in Q1 2008 to 21.2% in Q1 2009. The increase in gross margin is attributable to three factors: increased margin because of lower diamond prices, lower metal prices, and improved sourcing of products.
• EBITDA, increased from $5.2 to $5.3 million year on year.
• Net income was $1.9 and earnings per diluted share were $0.13 versus $0.16 a year ago.
• Company ended the quarter with a cash balance of $32.3 million. Because of the holiday purchase cycle, the significant payables were reduced. This results in a negative cash flow from operations during the first quarter. As stated, the company expects to exceed $11.8 million in non-GAAP free cash flow for the full year.
• No explicit guidance for the remaining quarters; however, the company expects improving sales trends with Q2 and Q3 below last year's levels. Q4, which was adversely affected last year, should have positive growth this year. EBITDA for 2009 should exceed 2008 EBITDA level.
• Notable Question and Answer Comments:
  • The second half of the quarter was stronger than the first half.
  • Because of the company's strong position, it is gaining more influence within the industry and other vendors are seeking to work with the company.
  • Diane Irvine commented: "With respect to the websites, specifically I think you’ll see a very significant change in our new website that we’ll launch later this year before the beginning of Q4 and it will really be the most significant change we’ve done to the website from a branding standpoint. So, I think elevating the level of specialty of our brand and the beauty of the product that we are selling, but it’s really designed to showcase the premier aspect of our brand."
  • Diamond mines reduced output in reaction to reduced consumer demand and jewelry bankruptcies with their inventory dumped on the marketplace. As excess diamonds are in the process of being sold, diamond mines are beginning to increase production again.
  • Despite new entrants into the online jewelry space, Blue Diamond believes that it continues to enhance its competitive position each quarter.
  • Diane Irvine mentioned that although bridal jewelry has a high price point and therefore a lower gross margin, Blue Nile had a larger proportion of bridal jewelry sales and increased gross margins. The increased gross margins are the results of lower diamond prices, lower metal prices, and better sourcing of products.
  • Marc Stolzman indicated that the vast majority of the reduced costs in diamonds and metals are passed along to the customer. This helps Blue Nile gain market share against its brick and mortar competitors who have a year's worth of inventory to work through.
  • Internet shopping bots don't do well when comparison shopping for diamond rings because diamond rings are specialized and differentiated products and not UPC coded. Thus, it is difficult to use a mechanical means for comparison. Customers are, however, sensitive to promotional activity and price points. Blue Nile is using that knowledge as part of its marketing plan.
  • Brick and mortar jewelry retailers remain in a very difficult environment. Bankruptcies are announced frequently. Liquidation is a headwind but the opportunity is less competition in the future. Also, the liquidation tends to be in the non-bridal jewelry.

On Monday, 11 May 2009, Diane Irvine appeared on CNBC's Fast Money show. Please view CNBC's video below (for those viewing by email or by RSS, you might have to visit this website to view the video):

Key themes from the CNBC segment:

• Irvine: Captured many of the points previously discussed and mentioned that the company still has plenty of runway ahead of it:
  • The company presently has about 4.5 percent of the engagement ring market and it believes that 15 percent is a reasonable target value.
• Jeff Macke: Just watch the cash flows. As long as strong cash flows remain, stock price doesn't matter much.
• Guy Adami: Price to book is over 30 times and there is a huge short interest.
• Tim Seymour: Echoes Guy's huge short interest concern.
• Pete Najarian: Recent trajectory has been too strong—wait for a pullback.

Let's examine their comments. But before doing so, I will provide some additional data and graphs.

Please note that you can click through the next two graphs to see full sized versions.

I agree with Jeff Macke. As long as the company remains focused on its business and its cash flows remain strong, share price isn't that important. Given the overall uncertainty in the economy, it's hard to provide a definitive price target. Looking at the Revenue chart above, we see the importance of the fourth quarter. Furthermore, if you look at some of the prominent analysts, one maintains his call for $18 per share from earlier this year. Good luck with that price forecast. Another analyst had a $30 price target earlier this year and is now at $50 per share. That's an amazing change in a short period. And, just to show you how smart I am, I was forecasting a share price of $20 – $25 per share so long as the S&P remained between 800 – 900. I was too bearish. However, to my credit, I knew the share price was difficult to determine and believed that Blue Nile would go higher as the economy improved. I was and remain long Blue Nile shares.

Guy Adami raises an interesting point with price to book value. Though, it's somewhat misleading. Blue Nile uses its surplus cash to repurchase shares, thereby reducing book value. Think of the situation this way: Blue Nile could have let its cash pile up on its balance sheet. Then, it would have a substantial book value, but more shares outstanding and a lesser cash flow and earnings per share metrics. As an investor, would you prefer a) high price to book value, capital returned to shareholders through repurchases, with fewer number of shares outstanding, and comparatively high cash flow to shares; or b) lower price to book value, cash sitting inefficiently on its balance sheet, with greater number of shares outstanding, and comparatively low cash flow to shares? The reality is, Blue Nile is not a capital or infrastructure intensive business. And that's what makes it successful against its brick and mortar competitors. So don't get led astray by looking at book values. As long as the company continues to return cash to shareholders, the book value will be low and the price to book value will be high.

Guy Adami and Tim Seymour commented on the huge short interest. There's always been a huge short interest. According to Yahoo, there is a 42.2% short interest against the available float. Five days ago, Twitter user jkutti2000 commented that she or he was unable to locate stock for a short. But I must warn you, shorting Blue Nile is challenging at best. Just look at the folks who were short three months ago. Again, the short interest was extremely high. Professional short seller Doug Kass, general partner of Seabreeze Partners Management, Inc. and commentator for The Edge Column on RealMoney Silver (subscription required—part of TheStreet.com family), has written rules that he uses. Of his written rules, at least two are appropriate here: "3) Create a diversified short book. No individual equity position should exceed 2% of your portfolio's assets" and "8). Avoid illiquid and heavily shorted stocks. If you don't, eventually a short squeeze will be the outcome, and with it will be heavy losses." So for those shorting, I urge caution.

Given that I am long, do the shorts bother me? No, not at all. In fact, they are best poison pill against a take-over by a larger and likely slower growing company. While a onetime share price pop is always appreciated, I'd prefer to enjoy several years of strong growth and strong share price appreciation. If a take-over were announced, shorts would have trouble locating shares and the share price would jump up substantially.

Pete Najarian mentioned that he was concerned that Blue Nile has moved too far too fast. The stock has pulled back, more than the market during the past few days. Last Friday, the stock spiked to over $51 per share and closed today (13 May 2005) $42.02. Will the stock pull back much further? I don't believe so. But if the general market enters a severe correction again, Blue Nile stock will not be immune.

Overall, I am impressed with Blue Nile. While their competitors are fretting about how to pay the bills and, unfortunately, closing stores and layoff staff, Blue Nile remains focused on running the business better. The company's survival is not in question, unlike much of its competition's, and the company is taking market share. It is expanding internationally with a smart strategy of allowing foreign customers to use their local currency for purchases. Blue Nile continues to benefit from its just-in-time retail model, unlike its competition that is stuck with expensive year old merchandise.

In terms of a share price target, that is extremely difficult, if not impossible. There are smart people who believe that we have not seen the worst in the economy. If the economy were to tank, Blue Nile would not escape. Conversely, others believe that the worst is behind us. Using that scenario, I believe Blue Nile will only get better and stronger with a higher share price. Earlier this year, I thought my prior forecast of $20 – $25 per share under an S&P of 800 – 900 was reasonable. I had several commenters on Seeking Alpha thinking that I was much too bullish. Reality is, in hindsight, I was much too bearish. If I had to guess now, I would say that Citigroup's Mark Mahaney's forecast of $50 per share seems reasonable. In summary, if the economy strengthens over the summer and into the fall, $50 will be too low. The converse is also true.

Disclosure: I am long Blue Nile stock.

A picture of Calgary Downtown in early spring, which is hosted at Flickr. If you click on the picture, you will be taken to where you can view a larger version and see more of my pictures.