Friday, July 11, 2008

Looking Forward for DDE

Happy summer to all! :-)

I have been relaxing on vacation for the last week, and it has given me some time to reflect on my SL business and put some thought into what the future holds for DDE. Since the delisting from WSE in March, things have been moving forward well. I wouldn't say that business is booming - it has been a difficult couple of months for the land biz in general - but things are consistent. Occupancy of the sims has dropped somewhat as I have mentioned before, but is still high enough to return a consistent profit. The Openspace sims are doing well.

As you all know, when I delisted from the WSE, it was with the intention of winding down DDE and eventually getting out of the land biz. A month later, though, Linden Labs announced new land prices, effectively reducing my assets by 40%, which made selling DDE a lot less desirable. however, the time pressures that made me want to wind down in the first place, are still there, and I am finding it more and more difficult to devote the time necessary to run DDE effectively. Nevertheless, since March, DDE has actually expanded to take advantage of the new Opensapce market, buying new sims for clients as they are needed, and when cash was available.

I have always only kep a modest cash reserve, enough to cover about half of my monthly tier at any one time - because it always made sense to me to put the money to work instead of holding it as a cash balance. Right now, DDE has enough cash on hand to pay about half of its monthly tier (which is approaching $8,000 USD per month). As you all know, DDE has been able to continue to provide dividends to shareholders and I have been able to buy back shares with my own money as we have gone along. The ultimate aim of this was to be the sole owner of DDE (eventually), and then consider my options.

Recently, I have begun to have some concerns about the land business in SL - I am hearing from many land owners that renters are harder to find, and I am not sure of the direction Linden Labs is planning to take into the future. I am worried that keeping such a low cash reserve is dangerous - if I were to lose a significant number of renters one month, I would be in danger of defaulting on tier payments, without enough time to sell off assets if it became necessary. In addition, I have lost out on a couple of opportunities to buy inexpensive sims (from some of these same land owners who are selling off to cover tier).

I know that DDE has been consistent in providing dividends every month since it first went public about 15 months ago - for a long time we provided weekly dividends, and have probably provided more 1.5L per share in dividends over that time. I have always wanted, and continue to want, to share the bounty of whatever success I have with investors. However, I think it would be prudent at this point, given my concerns, to retain a larger cash reserve for a "rainy day", or to position DDE to take advantage of opportunities that become available in the next six months.

So, I am proposing a three month "dividend holiday" for June, July, and August, during which no dividends would be distributed. I may still do limited buybacks of shares with my salary, if profits warrant a salary. This would give DDE a chance to increase cash reserves and maintain a more conservative financial position, and to address my own level of anxiety.

It's difficult for me to even propose this - I have always taken pride in our unbroken track record. However, after much thought, I am convinced that it is the prudent approach given the current state of affairs.

Since I don't really have a mechanism for "voting", I am going to assume that my shareholders will trust me to do what I think is best, unless I receive an outpouring of concern from them. If that happens, I will rethink my position and continue to communicate.

As always, please feel free to IM me, or leave a comment here with your questions, comments, or concerns.



Red Dutton (SL) said...

as for me i have no complaints and trust your actions

Konner said...
This comment has been removed by the author.
Anonymous said...

Fine for me.

Eliale Morigi

Anonymous said...

Reasonable level of cash reserve is absolutely necessary for any business. However, I don't think that doing mandatory buybacks and withholding dividends at the same time is fair to DDE shareholders. If the dividends are temporarily suspended, I would suggest to stop mandatory buy backs (only buy out the shareholders that ask for it). Once the dividend is reinstated, hopefully it will reflect the increase in company value accumulated during no-dividend period. Then all the shareholders could get their share of benefits and it will be fair to resume mandatory buybacks.

Regards, Vitall Beck

Delicious Demar said...

Thanks for the comments. I agree with you Vitall. I will not do any mandatory buybacks if no dividends are paid.