A pressure drop indicating an air leak was recorded on the International Space Station in August 2020.

Crew members temporarily isolated themselves in the Russian Zvezda module while searching for the leak.

The leak was located in the Zvezda module, specifically in the transition (middle) chamber.

During the August 2020 incident the station lost about one kilogram of air per day, but the crew's lives were not threatened.

Cosmonaut Anatoly Ivanishin used an opened tea bag to find the leak by observing tea leaves drift toward a metal wall and tracing their trajectory to a crack.

The crew initially taped the crack and later obtained permission to use a drill and sealant to repair it.

Since 2019 NASA and Roscosmos had been tracking a slow leak in the Russian Zvezda module.

On a separate reported incident, an air leak on August 30 was attributed to a manufacturing defect in the Soyuz MS-09 spacecraft.

That report said the crack in Soyuz MS-09 was in the living module and did not affect the return module, and cosmonauts used special sealant to fill the hole the next night.

In December 2021 Russian cosmonauts identified a possible additional leak site in the Zvezda module and Roscosmos said repair materials and equipment would be sent on a Progress cargo vehicle.

Roscosmos stated that if necessary NASA was considering isolating the Zvezda module completely as part of the response options.

Reports indicate crews have applied temporary fixes multiple times while inspections and further repairs continued.

In summary, the ISS experienced detectable air leaks (notably August 2020) located in the Russian Zvezda module, crews used improvised detection methods and temporary repairs, additional possible leak sites were identified later, and Roscosmos planned to send repair materials on a Progress vehicle while isolation of Zvezda was considered if needed.

A pressure drop indicating an air leak was recorded on the International Space Station in August 2020.

Title:

Content: How did a bag of tea help astronauts save $150 billion?
How did a bag of tea help astronauts save $150 billion?
A few years ago, a torn bag helped save the ISS
The International Space Station was built in 1998 for $150 billion.
Every year, another 3-4 billion dollars are spent to maintain its operability, but the design is already very old and needs repair more and more often.
For example, in August 2020, a pressure drop was recorded aboard the space station, which is a sign of an air leak.
All astronauts and cosmonauts on board were isolated in the Russian Zvezda module.
After some time, it was found out that the air-permeable crack was in the module in which the entire crew temporarily settled.
One of the Russian cosmonauts was able to quickly find the place of leakage with the help of a usual tea bag.
Oxygen on the ISS
According to the India Times, the space station loses about 250 grams of oxygen every day and this is normal - it is difficult to achieve complete tightness.
In the event of an acute shortage of oxygen, it is delivered by cargo ships, but is most often produced directly at the station.
In the second case, members of the ISS use electrolysis - an electric current is passed through the water, as a result of which oxygen appears.
To do this, on board there is a life support system ECLSS, which not only monitors the operation of the station, but also provides people with access to water, protects against fires and so on.
ECLSS technical director Robyn Carrasquillo once praised Russia for using a way to extract moisture from the air, even in the old Salyut and Mir spacecraft.
ECLSS system
Oxygen leakage to the ISS
In August 2020, the space station began to lose about a kilogram of air per day.
The situation was serious, but the lives of the ISS crew were not threatened.
Astronauts from different countries temporarily began to live in the Russian module “Zvezda ” and for four days searched for a leak in other parts of the station.
The search did not give any results, so it became clear that the gap is in the Zvezda module launched more than 20 years ago.
The leak could have occurred for various reasons, for example, due to the collision of the ISS with space debris, which is a lot in near-Earth space.
Also, it was not excluded that seals simply peeled off from the walls of the station, which just do not allow oxygen to leak.
ISS module "Zvezda"
Search for the place of oxygen leakage
An unusual way to find the leak was found by cosmonaut Anatoly Ivanishin.
He installed several cameras in the module and opened the tea bag.
After some time, the ISS members noticed that the tea leaves began to move slowly towards one of the metal walls of the module.
After studying the trajectory of the leaves, the space crew quickly found the crack formed on the ISS.
First, they taped this place with tape, and then got permission to use a drill and sealant.
It is known that thanks to the trick with a package of tea, the astronauts managed to save about 150 billion dollars.
Russian cosmonaut Anatoly Ivanishin
The International Space Station is aging and will one day become completely unusable – that ’ s a fact.
New cracks were discovered even in 2021.
Especially there are many of them in the Russian module “Zarya ”, which was launched into space in 1998 and today is the oldest part of the station.
More recently, Vladimir Solovyov, General Designer of the Energia Rocket and Space Corporation, announced his concerns about the safety of the station.
It is especially frightening that the station is planned to be used even after 2025.
In theory, the use of the old station could cause a terrible disaster.
ISS module "Zarya"
Finally, I note that to replace the old module "Dawn" it was planned to send the module "Science".
But it became an independent module and docked to the ISS in July 2021.
The docking was far from perfect - the module deployed the station at 45 degrees.
19 october 2021 /
• 0
Similar news
Why not bring alcohol to the ISS?
Alcohol is officially banned on the ISS, but space researchers have found many ways to carry it with them.
Cognac is very popular with them, but it makes no sense to take beer with you.
And all
China has launched an apparatus to collect lunar soil.
When will he return to Earth?
China has successfully launched to the moon the apparatus “Chang ’ e-5 ” to collect soil samples.
This is the first such mission in 44 years, and if all goes well, China will become the third country to do so.
Russia is developing its own space station.
What will it look like?
The International Space Station was launched into orbit around our planet in 1998.
Initially, it was planned that it will work for 20 years, but subsequently the period of its use was extended.
According to the opinion
On the ISS found a place of air leakage.
What's next?
Inside the International Space Station live astronauts from different countries and they all need oxygen.
The air necessary for the life of the crew is produced by special equipment, but
Space debris nearly damaged the ISS.
How did it all work out?
Humanity began to actively explore space with the help of complex technology around the middle of the 20th century.
First, hundreds were launched into Earth orbit every year, and then thousands began to be launched.
How does space affect human vision and movement?
the brain, like the heart, is one of the main organs of the human body.
It consists of many areas, each of which has certain tasks.
Take the brain for example, this
Comments
Popular news
Immersive exhibition of Claude Monet - a complete immersion in the world of the great impressionist In 2023, NASA will launch a new lunar rover VIPER into space.
What's he gonna do?
The Vasimr nuclear rocket will take humans to Mars in one month.
Frank Woolworth, creator of price tags and supermarkets Developed the smallest aircraft.
What is it for? A Japanese cafe became famous all over the world with a toilet in the aquarium "Rain Drops" by Samuel Salcedo in the park of the city of EtretaThis picture of Renoir made a lot of noise... and three times!

Title:

Content: On the ISS found a place of possible air leakage in the module “Star ”
On the International Space Station, a place of possible air leakage in the Zvezda module was discovered.
The discovery of a "suspicious" place in the module compartment was reported by cosmonaut Pyotr Dubrov during negotiations with the Flight Control Center.
“There was a suspicious place.
I was engaged in photographing it under a microscope with magnifying glasses, ” the cosmonaut quoted Interfax as saying.
Recall that in August 2020, air leakage to the ISS was detected in the transition chamber of the Zvezda module.
In October last year, cosmonauts managed to find the crack and repair it with temporary means.
In August 2021, the media reported the detection of non-through cracks in the Russian module of the ISS "Zarya".
Executive Director of Roscosmos for manned programs Sergei Krikalev said then that he had no information about new cracks at the station.
At the same time, the representative of the state corporation noted that even in the presence of non-through cracks, the ISS can be operated for another 20 years.
Add "Pravda.Ru" to your sources in Yandex.News or News.Google, or Yandex.Zen
Fast news in the Telegram-channel Pravda.Ru.
Don ’ t forget to subscribe to keep up to date.
Is the ISS going to be a space hotel?

Crew members temporarily isolated themselves in the Russian Zvezda module while searching for the leak.

The leak was located in the Zvezda module, specifically in the transition (middle) chamber.

During the August 2020 incident the station lost about one kilogram of air per day, but the crew's lives were not threatened.

Cosmonaut Anatoly Ivanishin used an opened tea bag to find the leak by observing tea leaves drift toward a metal wall and tracing their trajectory to a crack.

The crew initially taped the crack and later obtained permission to use a drill and sealant to repair it.

Since 2019 NASA and Roscosmos had been tracking a slow leak in the Russian Zvezda module.

Title:

Content: Paying bloggers
Blogs
Filcenberg
At that time, training simulations of the emergency situation were carried out.
Among NASA employees, there are often people known as simulator supervisors, or "simulants", who are treated with caution.
These people are responsible for creating and conducting complex and responsible flight simulations.
During these simulations, mission control engineers and astronauts get into simulation scenarios related to breakdowns and emergency situations, testing their resilience and readiness for real in-flight crisis situations.
advertising
According to NPR, on June 12, space enthusiasts listening through the NASA website to the air-to-ground connection between Houston and the International Space Station (ISS) were stunned by the data.
They heard a disturbing report that one of the astronauts was experiencing DCS, or decompression sickness.
The ISS is a serious danger on the ISS, where the internal atmosphere is maintained at a pressure of 1.033513 kilograms per square centimeter at sea level to protect astronauts from external vacuum.
The station has many seams and fittings, any of which can leak and pose a threat to the safety of the crew.
Since 2019, NASA and Roscosmos, the Russian space agency, have been tracking a slow leak in the Russian Zvezda module.
Although this leak is not life-threatening, attempts to eliminate it have so far failed.
The DCS emergency announcement made NASA listeners remember the Star leak, but ISS officials quickly said it was all right, announcing to X that the call was just the work of simsup, dispatchers and crew of astronauts undergoing training at SpaceX headquarters in Hawthorne, California, who conducted a simulation and accidentally crossed their transmissions with an air-to-ground line.
+
Popular news

On a separate reported incident, an air leak on August 30 was attributed to a manufacturing defect in the Soyuz MS-09 spacecraft.

Title:

Content: Soyuz manufacturing defect causes air leak at International Space Station
Kazakhstan News Agency / Astana / September 3 - According to the Russian satellite network reported on the 3rd, Russian rocket space sources said that the manufacturing defect is the cause of the "Soyuz MS-09" spacecraft leak.
There was an air leak on the International Space Station on August 30.
The astronauts examined all the compartments and found tiny cracks in the Soyuz MS-09 spacecraft.
It is located in the living module, not in the return module, so it will not affect the return of the spacecraft to Earth.
It was previously thought that the fissure was the result of a miniature meteorite hitting the spacecraft.
The next night, Russian cosmonauts used special sealant to fill the hole.
The source said: "The cause of the crack in the inner shell of the living module has been identified and it has appeared on Earth.
The person responsible for the fault was identified. "
According to another source, the crew likely sealed the leak with special glue after realizing the mistake, so it was not detected during the pre-launch check and the spacecraft ’ s first two months of orbital flight.
"However, the glue later dried out and was squeezed out, revealing cracks," he said.
The Russian space agency said a special committee would investigate and determine the cause of the accident.
Сейчасчитают

That report said the crack in Soyuz MS-09 was in the living module and did not affect the return module, and cosmonauts used special sealant to fill the hole the next night.

In December 2021 Russian cosmonauts identified a possible additional leak site in the Zvezda module and Roscosmos said repair materials and equipment would be sent on a Progress cargo vehicle.

Title:

Content: 22: 04, 31 December 2021
The Russian crew found the alleged site of air leakage on the International space station
It is located in the module “Star ”, said in“ Roscosmos ”.
The cosmonauts will begin repair work after the nearest Progress cargo ship will deliver the necessary funds to them, the state corporation said.
Today, during the congratulations of the Russian participants of the expedition to the ISS, the head of Roscosmos, Dmitry Rogozin, spoke about the problems faced by the astronauts.
Air leakage at the station was recorded more than two years ago.
Since then, crew members have found several cracks and reported that they were able to seal them.
However, the pressure on the station continued to fall.
Uploading comments...
The most discussed
Popular for the week
On the air today

Title:

Content: Possible location of air leak from the International Space Station
Space
International Space Station
Copy Link https: / / www.rt.com / s7a8
The media office of the Roscosmos Foundation announced that the Russian cosmonauts discovered in the unit "Zvezda", the possible place of air leakage from the International Space Station.
According to the information office, the materials and equipment needed to repair this place will be sent aboard the Progress cargo vehicle.
"The equipment and materials necessary to stop air leakage will be sent with the first Progress cargo vehicle launched to the International Space Station, to solve this problem once and for all," the statement said.
Astronauts Peter Dobrov and Anton Shkaplerov discovered the possible location of the air leak in December in the middle chamber of the Zvezda unit.
NASA has said it is considering isolating the Zvezda module completely if necessary.
The Roscosmos media office commented: “The concerns of our partners are unfounded and surprising. ”
Source: Novosti
Agree.
This website uses cookies. You can read the terms of use to activate this feature by clicking here

Roscosmos stated that if necessary NASA was considering isolating the Zvezda module completely as part of the response options.

Reports indicate crews have applied temporary fixes multiple times while inspections and further repairs continued.

In summary, the ISS experienced detectable air leaks (notably August 2020) located in the Russian Zvezda module, crews used improvised detection methods and temporary repairs, additional possible leak sites were identified later, and Roscosmos planned to send repair materials on a Progress vehicle while isolation of Zvezda was considered if needed.


MLM remained widespread in recent years, with companies using MLM models such as Educational Development Corp (EDUC) and legacy direct-selling brands discussed like Avon and Tupperware.

EDUC derives about 95% of revenues from a Home Business Division that sells Usborne books through consultants using an MLM model.

An analysis reported EDUC expanded its active consultant network from about 33,000 to 60,000 during the COVID period.

The same analysis noted EDUC raised its dividend from $0.20 to $0.32, sharply increased capital expenditures, and built inventory (inventory ≈60% of assets) during the pandemic.

The analyst interpreted those moves as management signaling confidence and preparing for sustained home-based demand.

Critical commentary argues traditional direct-selling firms have long declined and distinguishes MLM from old-style direct selling.

That commentary listed sharp public-stock declines for several MLM-related companies, citing example figures such as Herbalife −64% YTD, Nu Skin −31%, USANA −49%, Primerica −13%, and Medifast −45%.

The same piece described Avon and Tupperware as deeply contracted: Avon sold parts of its business (North America to LG and remaining global to Natura) and Tupperware suffered >90% stock decline with loan covenant and bankruptcy concerns.

Consumer-oriented reporting cites FTC findings that most people in MLMs make little or no money and reports that 99% of participants lose money.

Analysts and the EDUC analysis say the pandemic boosted recruiting and home-based sales for some MLMs, producing temporary tailwinds but also raising churn and reversion risk post‑pandemic.

Conclusion: Some MLM operators saw pandemic-era gains (e.g., EDUC), while legacy direct-selling brands and many public MLM stocks declined or restructured, and regulators and commentators warn most participants earn little or lose money.

MLM remained widespread in recent years, with companies using MLM models such as Educational Development Corp (EDUC) and legacy direct-selling brands discussed like Avon and Tupperware.

Title:

Content: 'Direct Selling' - Avon, Tupperware - Is Extinct

Nov. 18, 2022 11:25 AM ETHLF, MED, NTCO, NUS, PRI, TUP, USNA3 Comments
Robert FitzPatrick
394 Followers

Summary

  • Direct Selling became obsolete generations ago. So how is it that millions today get recruited for "income opportunity" in "direct selling" and billions are traded on "direct selling" stocks?
  • Avon and Tupperware are cited by "multi-level marketing," or MLM, promoters as "proof" that MLM, e.g., Amway, Herbalife, is "direct selling."
  • Usable data on actual income and churn rates of MLM "direct sellers," market saturation, and retail sales to actual customers are not provided.
  • In fact, Avon and Tupperware for years have been walking dinosaurs, still trying to do "person-to-person" sales to end-users with commodity products, while MLMs hype "unlimited" income.
  • The shrunken and devolved state of Avon and Tupperware today reveals that direct selling is extinct. MLM is not, and never was, direct selling.

It is generally accepted that "direct selling" was killed off generations ago by mass merchandising, big box stores, mail-order and then the internet, among other societal changes. The "Fuller Brush man" is long gone. No one's at home. No one wants or needs or has time for a "personal" salesperson. Everything's in stores or online. And, even when "direct selling" still lived, no one ever went into that tough line of work thinking they would get rich from it.

Yet, each year, millions are recruited, and pay thousands, for the "opportunity" to work as "direct sellers," with promises and expectations of "unlimited" income. The number involved today is many, many times greater than ever worked in that "extinct" field decades ago. Billions are being traded on Wall Street for shares of "direct selling" companies. How can this be?

In my book, Ponzinomics, the Untold Story of Multi-Level Marketing, I document the death of "direct selling" and the 1945 invention of "multi-level marketing," or MLM. I describe how "MLM" falsely assumed direct selling's revered old identity. I trace MLM from its Adam, a little California-based company called "Nutrilite," to today's "industry" led by Amway, Herbalife (HLF) down 64% YTD, Nuskin (NUS) down 31%, USANA Health Sciences (USNA) down 49%, Primerica, Inc. (PRI) down 13%, and Medifast (MED) down 45%. MLM's financial solicitations for consumers to become "direct sellers" have reached into – and led to losses for – virtually every household in America.

In the newly invented "MLM," the main source of revenue shifted from end-user customers to the salespeople themselves who are incentivized to "be their own customer" by buying their own products. Obviously, no one makes money purchasing their own inventory, but MLM offered a unique reason to do so – "unlimited" income potential.

No More Need to Knock on Doors

All MLM "direct sellers" can potentially gain "unlimited" income by recruiting an "endless" chain of other "direct sellers." No need to pound the pavement and get rudely rejected at front doors any more. Each "direct seller" on the chain has to meet a quota to "qualify" for future rewards from their recruits who, in turn, are their "own customers" and recruiters too, ad infinitum. The chain can grow without continuous personal effort. The qualifying quota can usually be met by just making a personal monthly purchase of inventory. "Commissions" on all these transactions, all the way down to the "last ones in," flow up the chain. In the MLM pay plan, most of the total commissions go to the top 1%. So, all new "direct sellers" try mightily to recruit (and buy) their way to those top ranks. Of course, only a tiny few can ever be at the top.

Some people argued this is a pyramid recruiting scheme, inherently unfair and deceptive, and a counterfeit of direct selling. In the design and the pay plan, bottom ranks – the vast majority – will inevitably lose. They said constantly adding salespeople in any area destroys profitable retail selling potential, if any exists to start with. They cited data on 90-99% loss rates and huge churn rates among new "recruits" and asked, where are the retail "customers"?

While offering no data on retail customers or salespeople losses or market saturation, MLM promoters offered "proof" that MLM is direct selling by pointing to two long-established and respected direct selling companies in their ranks, Avon and Tupperware (TUP). Both companies were members of the Direct Selling Association, DSA, and both were "direct selling" icons, Avon for its "ladies" and Tupperware for its "parties." To any pyramid scheme accusations, MLM promoters indignantly countered: "Are you calling Avon and Tupperware pyramid schemes?"

Walking Dinosaurs

The truth for both companies is very different from the MLM-spin. Avon and Tupperware used to have differentiated products and real consumer demand. Their salespeople made money from their own retail sales. But moving into the 21st Century, Avon and Tupperware became walking dinosaurs, vestiges of the extinct era of "direct selling." They were still trying to base their businesses on their historical brands and on person-to-person retail sales to real customers, as direct selling companies always used to do.

Despite MLM's citing Avon and Tupperware, and thereby bestowing legitimacy on the "MLM" members of the Direct Selling Association, deep differences between those icons of the old era and MLM burst into public view in 2013-14. The two companies publicly quit the Direct Selling Association, charging ethics violations and DSA-member connections to pyramid schemes.

Avon's Long Good-Bye

Avon had been a true direct seller for decades before MLM was invented. But as the door-to-door model faded, Avon began a long decline. In 2000, Avon began shifting its focus to "incentivizing" salespeople to recruit more salespeople and getting them to buy inventory, MLM-style. In 2009, during the Great Recession, Avon ran its most expensive ad in history, on television during the Super Bowl. The ad never mentioned any Avon products! It only solicited "salespeople." Still, global revenue dropped continuously over the next 10 years. Avon stock value fell from over $30 to just over $3.

Finally, Avon split off its faltering North American business and sold it to the Korean company, LG Household & Health Care. Avon claimed to have 250,000 sales representatives in North America. The remaining global business was later sold to the Brazilian MLM, Natura (NTCO) down 50% YTD, which also owns the retailer, Body Shop. Though Avon global was much larger, Avon shareholders traded 3 shares of Avon for just one in Natura.

The Korean-owned segment of Avon in North America is now classic MLM, selling the proverbial MLM "income opportunity" along with "health" supplements, make-up, jewelry, clothing, scented candles, even toothpaste.

On the Canadian Avon website, Avon promotes the "income opportunity," urging prospects in large bold black type: "Think big. Sell Avon part-time, full-time, you decide how much! It’s your business, your way!"

A disclosure (legally required in Canada, but not in the USA) appears midway down a long webpage in tiny, barely visible gray lettering: "The 2020 earnings of a typical Avon Leadership Representative was between $0 and $2,620 in commissions and bonuses." That's $0 to $50 a week, before subtracting all costs! And the "disclosure" does not break out how much of that tiny return comes from personal sales or the "downline."

Avon quietly rejoined the Direct Selling Association. The Brazilian company, Natura, which took over Avon's global business in 2020, has lost over 60% of its stock value in the last year.

Tupperware on the Brink

Tupperware was one of the first "party plan" companies, which are technically a small subset of MLM. They employ an "endless" recruiting chain, but are more rooted in retail sales transacted at "parties." Tupperware used to have a popular brand with innovative, differentiated products. But, as true direct selling began to disappear, Tupperware went into decline. It added MLM-type "health and beauty" commodities to bolster recruiting appeal but then deleted them. This year, it began also selling its products in Target department stores. Its kitchen-related goods are generally not distinct from other brands. A 10-months "Income disclosure" for Canada (not published in the USA) showed that half the "party planners" were classified "inactive," earning less than $30 for the period on average. 94% of the "active" ones reportedly received about $12 a week on average, before expenses.

In the last 5 years, the stock value of Tupperware has dropped over 90%. Its latest financials warned investors the company may violate loan agreements, setting off speculation Tupperware might declare bankruptcy.

The shrunken and devolved state of Avon and Tupperware, the most famous brand-icons of "direct selling," makes citing them as a defense of "multi-level marketing" as extinct as their old business model.

This article was written by

394 Followers
Robert L. FitzPatrick is the author of the new book, Ponzinomics, the Untold Story of Multi-Level Marketing (2020),the first comprehensive history and analysis of the "MLM" phenomenon, addressing its political influence, propaganda techniques and use of cult persuasion. FitzPatrick is an expert in examining and revealing deception and fraud in Ponzi schemes, pyramid schemes and bogus home-based businesses. He served as expert or consultant in more than 30 court cases involving pyramid schemes and multi-level marketing. He is co-author of False Profits (1997), an examination of the values and beliefs that support the delusions of pyramid schemes. He was featured on NBC Dateline, ABC World News, and CBS 60 Minutes, the documentary film, Betting on Zero and the podcast, The Dream.He has been quoted in many newspapers around the world, including the New York Times and Wall Street Journal. His booklet, Pyramid Nation, has been translated to Chinese and used by government regulators in writing China's first laws on pyramid schemes. His booklet, "The 10 Big Lies of Multi-Level Marketing", has been translated into four languages and posted on numerous websites. His White Paper, "The Main Street Bubble", which details the extensive influence-buying of the direct selling industry was featured in a CNBC Documentary, Selling the American Dream. In 2005, he delivered a seminar to in Colombo, Sri Lanka to central banking representatives from that country as well as India, Bangladesh, Bhutan, Maldives and Nepal. Robert FitzPatrick has developed informational resources for consumers, journalists, academics and regulators including a multi-media PowerPoint presentation and a statistical analysis of the losses suffered by participants in pyramid selling schemes. He also published a widely read booklet on the landmark federal case brought against the Amway Corporation. He is a expert network member of GLG Research, and Coleman Research Group, as well as other networks of experts who are referred to clients for consultation, speaking and report writing. In this capacity, he has provided expert consultation to financial many analysts who sought information about multi-level marketing companies and pyramid and Ponzi schemes. Robert FitzPatrick co-founded and serves as president of Pyramid Scheme Alert, the first international organization to expose and prevent pyramid scheme fraud. He personally responds to hundreds of consumer and news media inquiries each year. He has served as consultant and expert witness for Attorney General or State Attorney offices in four states, the US Dept. of Justice, and in numerous cases involving distributor fraud and pyramid schemes. Robert FitzPatrick is not an investor in multi-level marketing companies. He has never owned and never plans to own stocks of multi-level marketing companies. He has never been compensated based on any stock's performance. He does not offer investment advice and he is not an attorney.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is for educational purposes only. It discusses fundamentals of the "direct selling" business model and the evolution of "multi-level marketing."

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.

Title:

Content: Educational Development Corp.: Growth Risk Might Be Overblown

Moat Investing
1.46K Followers

Summary

  • EDUC is the exclusive US co-publisher of educational children's books produced by famous Usborne Publishing by leveraging multilevel marketing (MLM) strategy.
  • It has strong fundamentals, fair valuation, and a compelling growth story that is being ignored by the market.
  • We arrived at a target price of $12.4 to $14.6 without incorporating any future growth and expansion in operating margins.

Investment Idea

Educational Development Corporation (NASDAQ:EDUC) has an attractive value proposition, strong financials, and optionality of significant growth ahead due to structural changes caused by COVID. On top of that, the valuation is reasonable, and management has skin in the game (owns 23% of shares outstanding). For these reasons, we remain bullish.

Business Overview

EDUC is the exclusive US co-publisher of educational children's books produced in the UK by Usborne Publishing, and EDUC also exclusively publishes books through their ownership of Kane Miller.

The business operates in two segments:

Home Business Division (Usborne Books & More or "UBAM") -(95% of revenues) - This segment sells books through consultants directly to consumers using a multilevel marketing model (MLM). Consultants sell books by hosting home parties, social media, and hosting book fairs with schools and public libraries.

Publishing Division – (5% of revenues) - Sells books to bookstores, toy stores, and other retail outlets.

If you would like to get the gist of our thesis, you can watch our YouTube video below.

Value Proposition

The children's books market is very competitive and fragmented. There are more than 135 publishers of children's books in the US. EDUC is competing with Scholastic and Pearson, which have extensive resources to run marketing campaigns and are well-positioned in both online and offline distribution channels. Although EDUC has a little moat, they have some strengths to their business model that will allow long-term value creation.

They have an exclusive and long-term relationship with Usborne. Therefore, clients of the Usborne in the US must acquire their books via EDUC. Also, there is a consensus that Usborne books are high quality and among the industry's best.

Their sales are a function of the number of active sales consultants. Commissions paid to consultants are a variable cost, and they are only paid when sales are made. Although this makes SG&A grow as the top line grows, since it's not a fixed cost to the business, it allows EDUC to achieve significant operating leverage. Also, it allows them to scale quickly and have flexibility.

Direct sales strategies like multilevel marketing are commonly referred to as pyramid and Ponzi schemes. However, the table below shows that it does work sustainably and increases revenue growth over the long run despite the negative press.

Source: S&P Capital IQ

Why might EDUC be mispriced?

There are multiple factors. Firstly, it's a micro-cap. This usually means there is limited analyst coverage, and due to the stock's illiquidity, there is low institutional interest. These factors, coupled with others, leave the company under the market radar despite its business is doing well and has promising perspectives.

Second, there is negative press around the MLM business models. The MLM model deployed by EDUC is vastly different from dodgy tactics used by other players. For example, many MLM models require the seller to purchase the inventory from the company before selling. However, this reduces the risk for the company and puts extra pressure on the seller, which can be left with expensive inventory that cannot be sold or returned. In the case of EDUC, there is no requirement to hold inventory.

Third, markets might be believing that the business's tailwinds are temporary due to COVID. Amidst Covid, schools were closed, and parents were working from home; this drove home-based learning and benefited EDUC. Additionally, unemployment rates soared, and many were left looking for work. This allowed EDUC almost to double its consultant count from 33 to 60 thousand. We believe the post-pandemic work from home trend will persist, supporting their sales. Furthermore, the active consultant might not fall back to the pre-pandemic level as these roles are usually part-time work which fits nicely with the trending gig economy.

The evidence speaks louder than words

There are also some clues from the management that revenue generated amidst pandemics might be sticky.

Management increased its dividend per share from $0.20 to $0.32. A dividend increase should be seen as a signal that a business is in solid financial shape and management is confident about its future.

Management increased capital expenditures to $4.15 million from $0.64 in 2020. This expenditure was primarily associated with equipment purchases to increase daily shipping capacity. These are some early signs that management is expecting positive growth going ahead. Additionally, this also improves their margins as amidst Covid they paid a premium for extra shifts.

EDUC has increased its inventory; the inventory build-up is approximately 60% of its total assets. This has been in anticipation of an increase in the sales, as it takes a four to six-month lead-time to have a title printed and delivered to them.

Source: Koyfin

Value Investing Approach: Asset Value

To calculate the actual asset value of the company, we tried to replicate the business from scratch. Therefore, below you will find the last reported balance sheet, where we have made some adjustments.

The value of the land recorded on books was $4.1 million. They own a 40-acre complex at 5402 South 122nd East Ave, Tulsa, with 400,000 square feet of office and warehouse space. They also own a facility located at 10302 East 55th Place, Tulsa, that has 105,000 square feet of usable space. According to our channel checks with realtors, the average price per square foot of their land lies between the range of $100 to $115. To remain conservative, we took the average price square feet to be $85. Therefore, we estimate the value of its land to be $42.9 million.

They also have a network of around 55,000 active consultants. To construct such a network from scratch is both costly and time-consuming. We estimate the replication cost of this network to be around $27.5 million ($500 per consultant). This is also roughly five months of sales commission cost incurred by EDUC in the fiscal year 2021.

The rest of the items are taken on book value.

Based on the above adjustment, we arrive at the total asset value of 106.7, and the fair value per share to be $12.4

Source: Moat Investing

Value Investing Approach: Earnings Power Value

This approach allows us to value EDUC without incorporating any growth. Here, we consider the business's historical figures (last five years) to get the normalized earnings and operating margin. To calculate the sustainable earnings, we smoothed out the company revenues for the previous five years to $131 million and then calculated the firm's average operating margin (6.5%) to arrive at the sustainable Operating Income of $8.5 million.

We add back the expenses typically spent on growth, and we estimate around 4.5% of sales is spent on growth marketing, i.e., promotion, advertisement, and discounts. Hence, we add this back as this expense is not required if the firm was not aiming to achieve growth.

We assume the normalized tax rate to be 26% and the estimated cost of equity at 9%. Therefore, we estimate Earning Power Value of the operating business to be $134 million. To that, we add the non-operational cash ($1.8 million), and we subtract long-term debt (10.8); we arrive at an implied market cap of $125.6 million or $14.6 price per share, with 12.3% upside potential, without incorporating any growth or expansion in operating margins.

Source: Moat Investing

Risks to Our Investment Case

  • Stringent regulation regarding MLM companies. For instance, the requirement to treat consultants as employees. This could have implication when it comes to taxation, wages paid and welfare concerns for workers. This could, in turn, shrink the bottom line or, worse, business model tatters.
  • The most straightforward risk is consultants quitting or switching to find other employment as the US economy improves. However, within our valuation model, we have smoothed the growth of revenue in the last five years, which is a function of l consultants recruited. Even if there is some mean reversion in terms of consultants working with EDUC due to the COVID base effect, our thesis would be less impacted.
  • As highlighted earlier EDUC’s inventory level is a significant portion of its asset. Whatever reason they become unsalable (i.e., change in taste or controversy in terms of published content) could impact our valuation.
  • Oil prices have increased significantly since last year (see below). Shipping costs are amongst the most significant component of its COGS; further rise in oil prices (consequently increasing shipping cost) could make it difficult for EDUC to remain profitable.

Source: Trading Economics

Conclusion

EDUC has an attractive value proposition, strong financials, and optionality of significant growth ahead due to structural changes caused by COVID. On top of that, the valuation is reasonable, management has skin in the game (owns 23% of shares outstanding), and investors are not even paying for any future growth at current prices. For these reasons, we remain bullish.

This article was written by

1.46K Followers
We are a group of experienced investors that like to dig deeper into stocks to find growth stories at a reasonable price with strong economic moats. We also aim to conduct high-quality analysis by deep diving into valuations, key business drivers, risk/reward, and different future scenarios.
Follow

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.

EDUC derives about 95% of revenues from a Home Business Division that sells Usborne books through consultants using an MLM model.

An analysis reported EDUC expanded its active consultant network from about 33,000 to 60,000 during the COVID period.

The same analysis noted EDUC raised its dividend from $0.20 to $0.32, sharply increased capital expenditures, and built inventory (inventory ≈60% of assets) during the pandemic.

The analyst interpreted those moves as management signaling confidence and preparing for sustained home-based demand.

Critical commentary argues traditional direct-selling firms have long declined and distinguishes MLM from old-style direct selling.

That commentary listed sharp public-stock declines for several MLM-related companies, citing example figures such as Herbalife −64% YTD, Nu Skin −31%, USANA −49%, Primerica −13%, and Medifast −45%.

The same piece described Avon and Tupperware as deeply contracted: Avon sold parts of its business (North America to LG and remaining global to Natura) and Tupperware suffered >90% stock decline with loan covenant and bankruptcy concerns.

Consumer-oriented reporting cites FTC findings that most people in MLMs make little or no money and reports that 99% of participants lose money.

Title:

Content: Terrible Things People Do For Money: What You NEED To Learn

0

You can laugh if you want. But, growing up, I was into professional wrestling. It was something that my dad was a fan of. So, naturally, this is what we did to bond.

Anyway, there was this wrestler named Ted DiBiase whose gimmick was “The Million Dollar” man. And, he had an amazing catchphrase; “Everybody’s got a price.”

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2021 hedge fund letters, conferences and more

This Hedge Fund Thinks Nintendo Is The Next Apple

Apple's influence over the stock market and tech world appears to be waning, at least in terms of mindshare. While it's true that Apple stock has soared alongside other tech favorites over the last couple of years, tech news sites are no longer overflowing with daily headlines about the iPhone. Apple Stock Is Surging, And Read More

For some of us. That actually might be true.

Questionable Acts People Would Do For Money

A survey of 1,000 conducted by OnePoll.com found that 6% of people would commit murder for $1 billion. Treason, armed robbery, mugging with a weapon, or assisting in suicide are some of the crimes committed by one in ten people.

What about a million bucks? In addition to credit card fraud, one in ten would smuggle drugs over the border or even star in an amateur pornographic video. In exchange for $100,000,000, a quarter of people would steal a bike, forge a signature, lie to police and donate sperm or eggs without their partner’s knowledge. Meanwhile, a demented one in ten would kick a kitten or puppy. And, that same figure would take performance-enhancing drugs to win a sporting event or beat up a stranger.

For $100,000? 25% of people would steal a street sign. It’s also enough for one in five people to forge a signature or take from a restaurant or hotel. One in ten say they would enter into a sham marriage, perform a sexual act on a stranger, falsify tax returns, or snatch a purse for the same amount.

In exchange for $10,000, one in five will steal a street sign, shoplift or flash a stranger. On the other hand, one out of ten people would lie under oath, steal a bike or spend counterfeit cash for the same price.

What would people do for a thousand bucks? 15% of people were willing to shoplift or bet on a fixed sporting event.

Why Do Good People Do Bad Things?

Some people may not have much in terms of a moral compass. I would actually think that most of us are the opposite. Committing a heinous crime not only cheapens life. What’s more, there are additional costs that far outweigh the monetary value.

For serious crimes, you have legal expenses, as well as the probability of going to prison. Also, even if you aren’t charged with a crime, that money can be seized.

And, let’s be real here. Would really trust someone to offer you a large sum of money to commit a crime? There’s a good chance it’s a scam or set it up, such as the fake website Rent-A-Hitman. Even if the offer was real, that’s definitely someone you do not want to associate with.

Still, even decent and law-abiding citizens may do bad things.

Researchers from the University of Utah and Harvard found that even the prospect of money encourages unethical behavior.

“Were were interested in why good people would do bad behavior,” Kristin Smith-Crowe, a management professor and co-author of the study told CNBC.

“We certainly found that the love of money is corrupting and just the mere exposure to it makes people do bad things,” Smith-Crowe said.

“The study didn’t ask people to do horrible acts, there were more mundane like stealing office supplies,” Smith-Crowe added. For example, taking home a ream of paper from work when your printer at home is empty.

The Worst Ways to Make Money

So, with all that being said, that got me thinking. What are the worst ways to make money? And, no. I’m not talking about unspeakable acts like murder or hurting an animal. My focus is on seemingly legit, yet risky, illegal, dangerous, and unprofitable ways to make some extra cash.

Taking online surveys.

There is no shortage of online surveys. With some surveys, you’re asked your opinion on current events or to perform an act of kindness. Most often, however, surveys want your feedback on a product or service.

However, whenever you see a survey that promises decent money in hardly any time, buyer beware. While these surveys do pay, the cost is minimal. I’m taking from a couple of cents to a couple of dollars. Is it really worth your time to make that little amount of money?

A better option would be picking up a second job, even if it’s a minimum wage job you do on the weekend. If that’s not an option, consider a focus group or qualitative research study if you want a well-paying survey.

I should also add that online surveys aren’t the worst idea for certain demographics. For example, a stay-at-parent could do these surveys while their kid(s) are napping.

Medical testing and selling bodily fluids.

“Paid medical testing is neither a scam nor a low-reward opportunity; it’s possible to make actual money if you devote yourself to being a full-time pincushion for science,” writes Jon Skindzier for Ask Men. “No, this idea comes with its own unique set of drawbacks like vomiting, chills, seizure, death — stuff like that.”

“Six subjects in London, for example, suffered organ damage and life-threatening complications while testing an arthritis treatment in 2006,” he adds. “The real question isn’t whether or not you can make money this way; it’s how much bodily harm you’re willing to risk in the process.”

Stying in the “ick” zone, this is also true of selling bodily fluids. Processes are long, complex, and time-consuming, but the pay is low.

It’s possible for women to sell their eggs too. In addition to taking up time, this procedure can also be rather painful since fertility shots are often necessary. It is true that donations are not a dependable way of making money, and very often they are restricted by time constraints.

Multilevel marketing companies (MLMs).

If you haven’t personally been invited, I guarantee someone you know has been. Invited to what? Those “parties” where a friend or acquaintance is selling essential oils, pet care products, jewelry, children’s books, etc.

It turns out, that this is a MLM program.

As the FTC notes, “Most people who join legitimate MLMs make little or no money. Some of them lose money. In some cases, people believe they’ve joined a legitimate MLM, but it turns out to be an illegal pyramid scheme that steals everything they invest and leaves them deeply in debt.”

The FTC has also reported that 99% of people who take part in multiple-level marketing lose money. Why? Because MLM companies require their members to purchase products in advance with the hope of reselling them at a profit.

While there are some legit MLMs, Avon springs to mind, if you aren’t a salesperson or have the upfront costs you might want to consider alternatives. Freelancing, affiliate marketing, or drop shipping might be some viable options that are better suited to your budget and/or skills.

Using click-bait to sell links.

The majority of bloggers earn their living from advertising, affiliate sales, and more. Click-bait links, those that lead nowhere, to the wrong site, or make your browser a mess, aren’t sold or bought by them. Overall, there is little money to be made from these bottom-feeding methods.

How can you make money from a blog then? Partner with trusted affiliate programs such as ClickBank, ShareASale, or Commission. From there, you can set up ads with Google AdSense.

Those fake links will eventually get noticed by your readers, and they will stop reading your articles.

Sign spinning.

We’ve all seen them on the sidewalks holding signs advertising particular businesses. No matter the weather, at least one is always trying to attract customers. Because you are required to stand all day long, the job is extremely tiring as well.

Additionally, the pay is usually low. And, the practice has been criticized for causing distractions among drivers.

If you’re looking for part-time or a side hustle, you might want to explore more fulfilling options. If you’re a dog person, then consider dog walking or sitting. Do you like cruising around town? Maybe deliver food or rideshare.

Day trading.

Unless you have a lot of experience in investing, day trading in the stock market is highly risky. As a new investor, you should stick with mutual funds until you gain more experience.

While it isn’t as exciting or profitable, at least you’ll be able to make money as you learn the ropes.

Selling pirated materials.

Many pirated electronic books or digital copies of Hollywood blockbusters can be found and downloaded online either for free or for a small fee. Sound appealing, right? After all, it’s cheaper than going to the theater or buying an original copy. And, these are major corporations that can take the hit.

Well, it’s not as harmless you may have assumed. In 2022, it’s expected that the movie and TV industry will lose $51.6 billion to online piracy. Additionally, piracy can land you in trouble with local, state, and national authorities as well as your Internet provider.

Online gambling.

I know a couple of people who boast about the money they made gambling — either in-person or online. My first question? “Yeah, but how much did you lose to win that money?”

Trying to make money with gambling of any kind is always a bad move. In addition, online gambling is more accessible 24/7, making it easier to become addicted to it than in-person gambling. If not treated, you can literally lose everything.

If you have a gambling addiction, please got professional help. And, even if you don’t, look for other alternatives to make money where the societal and financial cost isn’t as high.

Work-from-home scams.

Online money-making offers that seem too good to be true probably are. The scammer capitalizes on your desperation to obtain your personal information so that they can steal your identity or use the money to set up a job for you. In cases where something seems fishy, such as poor spelling or grammar in an advertisement or on a website or a request for you to send money, you should be cautious.

That’s not to say that there aren’t legit work-from-home opportunities. In fact, here are 12 work-from-home jobs that will help you earn a million dollars in less than 10 years.

Recycling.

Once again, we are seeing an extremely time-consuming effort for very little result. In addition, lots of recycling must be done before profits can be made. It is usually necessary to obtain recyclables from others before profits can be made. It simply does not make sense to move and clean substantial quantities of items unless you have the storage space and means to accomplish this.

I can personally attest to this. I thought years ago that instead of just recycling my cans, why not make some money off of them. For months I crushed and stored cans until I had several big bags. I took them to the scrap yard and got like $20. It wasn’t even worth the gas going back and forth.

Final Words of Advice

You have to know which opportunities are worthwhile and which ones aren’t if you’re looking to start a new side hustle or just make money online. You can find better alternatives to all these bad ideas on our list of 101 passive business and income ideas.

Article by John Rampton, Due

About the Author

John Rampton is an entrepreneur and connector. When he was 23 years old while attending the University of Utah he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months he had several surgeries, stem cell injections and learned how to walk again. During this time he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine, Finance Expert by Time and Annuity Expert by Nasdaq. He is the Founder and CEO of Due.

Updated on

No posts to display

Analysts and the EDUC analysis say the pandemic boosted recruiting and home-based sales for some MLMs, producing temporary tailwinds but also raising churn and reversion risk post‑pandemic.

Conclusion: Some MLM operators saw pandemic-era gains (e.g., EDUC), while legacy direct-selling brands and many public MLM stocks declined or restructured, and regulators and commentators warn most participants earn little or lose money.


Educational Development Corporation (EDUC) sells most of its books through a Home Business Division that uses a multilevel marketing (MLM) model and accounted for about 95% of the company's revenues.

EDUC reported that its active consultant base grew from about 33,000 to about 60,000 during the COVID period.

EDUC attributed pandemic-era tailwinds to school closures, more home-based learning, and higher unemployment, which it said helped recruitment and sales.

EDUC reported management increased its dividend per share from $0.20 to $0.32 and raised capital expenditures to $4.15 million from $0.64 million in 2020.

EDUC stated its consultant program does not require consultants to hold inventory, distinguishing it from some other MLM models that require inventory purchases.

The EDUC analysis argued that MLM-style direct sales can scale quickly because commissions are variable costs and allow operating leverage.

EDUC's report flagged risks that could reduce MLM profitability, including potential regulatory changes that reclassify consultants as employees, consultant churn, unsalable inventory, and higher shipping costs.

An explanatory article cited the U.S. Federal Trade Commission (FTC) finding that 99% of people who take part in MLMs lose money.

Robert FitzPatrick argued that traditional 'direct selling' has been in long decline and that modern MLMs are a distinct model built around recruitment and internal consumption rather than classic person-to-person retail sales.

FitzPatrick reported sharp YTD declines for several public companies associated with MLM or direct-selling channels, citing Herbalife down 64% YTD, Nu Skin down 31% YTD, USANA down 49% YTD, Primerica down 13% YTD, and Medifast down 45% YTD.

FitzPatrick described Avon's long decline, noting global revenue dropped over a decade, the stock fell from over $30 to just over $3, and Avon sold its North American business to LG Household & Health Care and later had its remaining global business acquired by Natura.

FitzPatrick reported that Natura had lost over 60% of its stock value in the referenced one-year period.

FitzPatrick reported that Tupperware experienced a collapse in market value, with its stock down more than 90% over five years, and that the company had warned it might violate loan covenants, prompting bankruptcy speculation.

FitzPatrick noted Tupperware also began selling some products through Target and that party-plan income disclosures in Canada showed very low average earnings for many 'party planners.'

FitzPatrick described Avon and Tupperware publicly quitting the Direct Selling Association in 2013–2014 over ethics concerns and later noted Avon rejoined the association.

The provided documents together indicate a recent pattern in which some MLM operations saw pandemic-driven recruitment and sales gains while other legacy direct-selling brands and publicly traded MLM-related companies showed multi-year declines and financial distress.

The articles emphasize reputational, regulatory, and income-distribution issues in MLMs, including the claim that most participants earn little or lose money and that commissions tend to concentrate at the top.

The provided context includes no clear example of a company fully abandoning a recruitment-based MLM structure to adopt a pure recruitment-free direct-sales business model, although some firms (for example Tupperware) moved part of their distribution toward retail channels.

In summary, pandemic conditions temporarily boosted recruitment and sales for some MLM players like EDUC while many legacy direct-selling icons and several public MLM-related stocks experienced substantial multi-year declines and financial stress in the recent period covered by these documents.

Educational Development Corporation (EDUC) sells most of its books through a Home Business Division that uses a multilevel marketing (MLM) model and accounted for about 95% of the company's revenues.

Title:

Content: Educational Development Corp.: Growth Risk Might Be Overblown

Moat Investing
1.46K Followers

Summary

  • EDUC is the exclusive US co-publisher of educational children's books produced by famous Usborne Publishing by leveraging multilevel marketing (MLM) strategy.
  • It has strong fundamentals, fair valuation, and a compelling growth story that is being ignored by the market.
  • We arrived at a target price of $12.4 to $14.6 without incorporating any future growth and expansion in operating margins.

Investment Idea

Educational Development Corporation (NASDAQ:EDUC) has an attractive value proposition, strong financials, and optionality of significant growth ahead due to structural changes caused by COVID. On top of that, the valuation is reasonable, and management has skin in the game (owns 23% of shares outstanding). For these reasons, we remain bullish.

Business Overview

EDUC is the exclusive US co-publisher of educational children's books produced in the UK by Usborne Publishing, and EDUC also exclusively publishes books through their ownership of Kane Miller.

The business operates in two segments:

Home Business Division (Usborne Books & More or "UBAM") -(95% of revenues) - This segment sells books through consultants directly to consumers using a multilevel marketing model (MLM). Consultants sell books by hosting home parties, social media, and hosting book fairs with schools and public libraries.

Publishing Division – (5% of revenues) - Sells books to bookstores, toy stores, and other retail outlets.

If you would like to get the gist of our thesis, you can watch our YouTube video below.

Value Proposition

The children's books market is very competitive and fragmented. There are more than 135 publishers of children's books in the US. EDUC is competing with Scholastic and Pearson, which have extensive resources to run marketing campaigns and are well-positioned in both online and offline distribution channels. Although EDUC has a little moat, they have some strengths to their business model that will allow long-term value creation.

They have an exclusive and long-term relationship with Usborne. Therefore, clients of the Usborne in the US must acquire their books via EDUC. Also, there is a consensus that Usborne books are high quality and among the industry's best.

Their sales are a function of the number of active sales consultants. Commissions paid to consultants are a variable cost, and they are only paid when sales are made. Although this makes SG&A grow as the top line grows, since it's not a fixed cost to the business, it allows EDUC to achieve significant operating leverage. Also, it allows them to scale quickly and have flexibility.

Direct sales strategies like multilevel marketing are commonly referred to as pyramid and Ponzi schemes. However, the table below shows that it does work sustainably and increases revenue growth over the long run despite the negative press.

Source: S&P Capital IQ

Why might EDUC be mispriced?

There are multiple factors. Firstly, it's a micro-cap. This usually means there is limited analyst coverage, and due to the stock's illiquidity, there is low institutional interest. These factors, coupled with others, leave the company under the market radar despite its business is doing well and has promising perspectives.

Second, there is negative press around the MLM business models. The MLM model deployed by EDUC is vastly different from dodgy tactics used by other players. For example, many MLM models require the seller to purchase the inventory from the company before selling. However, this reduces the risk for the company and puts extra pressure on the seller, which can be left with expensive inventory that cannot be sold or returned. In the case of EDUC, there is no requirement to hold inventory.

Third, markets might be believing that the business's tailwinds are temporary due to COVID. Amidst Covid, schools were closed, and parents were working from home; this drove home-based learning and benefited EDUC. Additionally, unemployment rates soared, and many were left looking for work. This allowed EDUC almost to double its consultant count from 33 to 60 thousand. We believe the post-pandemic work from home trend will persist, supporting their sales. Furthermore, the active consultant might not fall back to the pre-pandemic level as these roles are usually part-time work which fits nicely with the trending gig economy.

The evidence speaks louder than words

There are also some clues from the management that revenue generated amidst pandemics might be sticky.

Management increased its dividend per share from $0.20 to $0.32. A dividend increase should be seen as a signal that a business is in solid financial shape and management is confident about its future.

Management increased capital expenditures to $4.15 million from $0.64 in 2020. This expenditure was primarily associated with equipment purchases to increase daily shipping capacity. These are some early signs that management is expecting positive growth going ahead. Additionally, this also improves their margins as amidst Covid they paid a premium for extra shifts.

EDUC has increased its inventory; the inventory build-up is approximately 60% of its total assets. This has been in anticipation of an increase in the sales, as it takes a four to six-month lead-time to have a title printed and delivered to them.

Source: Koyfin

Value Investing Approach: Asset Value

To calculate the actual asset value of the company, we tried to replicate the business from scratch. Therefore, below you will find the last reported balance sheet, where we have made some adjustments.

The value of the land recorded on books was $4.1 million. They own a 40-acre complex at 5402 South 122nd East Ave, Tulsa, with 400,000 square feet of office and warehouse space. They also own a facility located at 10302 East 55th Place, Tulsa, that has 105,000 square feet of usable space. According to our channel checks with realtors, the average price per square foot of their land lies between the range of $100 to $115. To remain conservative, we took the average price square feet to be $85. Therefore, we estimate the value of its land to be $42.9 million.

They also have a network of around 55,000 active consultants. To construct such a network from scratch is both costly and time-consuming. We estimate the replication cost of this network to be around $27.5 million ($500 per consultant). This is also roughly five months of sales commission cost incurred by EDUC in the fiscal year 2021.

The rest of the items are taken on book value.

Based on the above adjustment, we arrive at the total asset value of 106.7, and the fair value per share to be $12.4

Source: Moat Investing

Value Investing Approach: Earnings Power Value

This approach allows us to value EDUC without incorporating any growth. Here, we consider the business's historical figures (last five years) to get the normalized earnings and operating margin. To calculate the sustainable earnings, we smoothed out the company revenues for the previous five years to $131 million and then calculated the firm's average operating margin (6.5%) to arrive at the sustainable Operating Income of $8.5 million.

We add back the expenses typically spent on growth, and we estimate around 4.5% of sales is spent on growth marketing, i.e., promotion, advertisement, and discounts. Hence, we add this back as this expense is not required if the firm was not aiming to achieve growth.

We assume the normalized tax rate to be 26% and the estimated cost of equity at 9%. Therefore, we estimate Earning Power Value of the operating business to be $134 million. To that, we add the non-operational cash ($1.8 million), and we subtract long-term debt (10.8); we arrive at an implied market cap of $125.6 million or $14.6 price per share, with 12.3% upside potential, without incorporating any growth or expansion in operating margins.

Source: Moat Investing

Risks to Our Investment Case

  • Stringent regulation regarding MLM companies. For instance, the requirement to treat consultants as employees. This could have implication when it comes to taxation, wages paid and welfare concerns for workers. This could, in turn, shrink the bottom line or, worse, business model tatters.
  • The most straightforward risk is consultants quitting or switching to find other employment as the US economy improves. However, within our valuation model, we have smoothed the growth of revenue in the last five years, which is a function of l consultants recruited. Even if there is some mean reversion in terms of consultants working with EDUC due to the COVID base effect, our thesis would be less impacted.
  • As highlighted earlier EDUC’s inventory level is a significant portion of its asset. Whatever reason they become unsalable (i.e., change in taste or controversy in terms of published content) could impact our valuation.
  • Oil prices have increased significantly since last year (see below). Shipping costs are amongst the most significant component of its COGS; further rise in oil prices (consequently increasing shipping cost) could make it difficult for EDUC to remain profitable.

Source: Trading Economics

Conclusion

EDUC has an attractive value proposition, strong financials, and optionality of significant growth ahead due to structural changes caused by COVID. On top of that, the valuation is reasonable, management has skin in the game (owns 23% of shares outstanding), and investors are not even paying for any future growth at current prices. For these reasons, we remain bullish.

This article was written by

1.46K Followers
We are a group of experienced investors that like to dig deeper into stocks to find growth stories at a reasonable price with strong economic moats. We also aim to conduct high-quality analysis by deep diving into valuations, key business drivers, risk/reward, and different future scenarios.
Follow

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.

EDUC reported that its active consultant base grew from about 33,000 to about 60,000 during the COVID period.

EDUC attributed pandemic-era tailwinds to school closures, more home-based learning, and higher unemployment, which it said helped recruitment and sales.

EDUC reported management increased its dividend per share from $0.20 to $0.32 and raised capital expenditures to $4.15 million from $0.64 million in 2020.

EDUC stated its consultant program does not require consultants to hold inventory, distinguishing it from some other MLM models that require inventory purchases.

The EDUC analysis argued that MLM-style direct sales can scale quickly because commissions are variable costs and allow operating leverage.

EDUC's report flagged risks that could reduce MLM profitability, including potential regulatory changes that reclassify consultants as employees, consultant churn, unsalable inventory, and higher shipping costs.

An explanatory article cited the U.S. Federal Trade Commission (FTC) finding that 99% of people who take part in MLMs lose money.

Title:

Content: Resignation ｜ I 've only been working for 1 year and want to change jobs? The same is true for senior positions. Visual interview is the key.
Author: The Manager
Published: Updated:
How long will you stay until you leave if you find that the job content or treatment doesn ’ t meet your expectations?
According to a LinkedIn survey, more and more people find themselves unsuitable for a job and will quit within a year. George Anders, a senior editor at LinkedIn, calls this ultra-short work experience a “quick quitting. ”
Starting in August 2021, the proportion of employees leaving within one year of their new job is increasing and peaked in March of this year.
According to Anders, in general, “rapid departures ” occur more often in Generation Z, who are on lower salaries, are new to the job market and uncertain about their future career development, and are also the largest in terms of numbers, but he also found that the short-term departures rate of senior executives has increased significantly.
Related articles: Quiet dismissal? Quiet dismissal? In the end, it is a toxic way to hire and hurt each other.
+ 15
Video interview leads to disapproval of new entrants
LinkedIn ’ s survey charts show that short-term turnover rates for workers in different positions have risen since mid-2021, and diverging curves only after September.
The group rate of new entrants to the workplace changes between 0% and 5%, and the turnover rate of colleagues, supervisors, managers, and even deputy general managers in senior positions continues to rise, and by February 2022, the turnover rate of managers has even reached 20%, and it has gradually slowed to about 10%.
In the first half of 2022, the rapid turnover rate of senior executives at the vice president level fluctuated between 8% and 16%, and as of August, it remained at 13%.
According to Anders, the use of video interviews during the pandemic may be a major reason for the rapid rise in turnover rates.
These interviewers do not have the opportunity to visit and observe the office environment, and similarly, they will not meet new colleagues in the future, which may allow new people to enter the company, only to find out and their own thinking is not the same, and quickly leave the job.
The epidemic has increased the pressure on management positions, leaving senior executives out of their posts.
Another important reason may be that some industries directly affected by COVID-19 are under severe stress.
For example, data on the health industry points to a rapid increase in the number of hospital CEO departures.
In the absence of branches, a total of 440 CEOs resigned between January and April last year, and this year, it has grown to 518, an increase of 18%. Due to the impact of the epidemic, some people choose to retire or switch to other high-level positions (such as consultants) to look for other opportunities.
Other organizations, including those in the medical field, also have many reports of managers expressing excessive stress and dissatisfaction; they are caught between executives, families, and personal mental health who are eager to push for organizational change.
These huge and invisible pressures are harassing frontline managers during the pandemic.
In addition, Fortune cited research from the Massachusetts Institute of Technology (MIT), which found that one of the reasons for the increase in the turnover rate of mid-level executives is a toxic work culture, which is 10 times more likely than low pay.
For supervisors, changing hybrid work rules, as well as upward and downward workplace management, accelerate burnout in supervisors.
If there is a shortage of labor, there is no harm in saying anything naked.
Anders also observed that some industries have higher rapid turnover rates than others.
For example, in August, data showed that the arts and leisure services sector increased by about 12% compared to the same period last year, traditionally defined as white-collar high-paying workers in technology, financial and professional services, due to high market demand and rapid turnover rates.
Dave Carhart, deputy general manager of employee management software Lattice, told Fortune that in the active labor market, workers have realized that if companies can ’ t meet their needs or expectations, they don ’ t need to stick around for more than a year.
Despite the downturn, and even the news that big companies are laying off employees and stopping hiring, the labor market is still strong, and news of talent shortages or talent grabs is everywhere.
According to Forbes, as of the end of July, there were 11.2 million job openings in the United States, which means that on average, there are about 2 job openings per job-seeker, which means that human resources are leaning toward the seller market, which is why more and more people are leaving jobs quickly.
In the face of rapid turnover, employers should pay attention to the job experience
In order to offset inflation, many people seek higher-paying jobs; although companies may raise wages, the increase is mostly not keeping pace with inflation, Forbes analysis.
In the post-pandemic era, many people have experienced dramatic changes in their lives, where work is no longer a priority and they are reluctant to tolerate poorly managed or unhealthy work environments.
Studies have shown that hybrid work is also the key to employee retention. If employers return to physical work, two thirds of people will choose to find a new job.
Once the workplace environment is not as expected, they will no longer be hesitant to stay for a year.
"Inc." said that rapid departure is not a new phenomenon, in the past to the present, there are many examples of people leaving soon after arriving at the job.
However, there has been a recent increase in the rate of rapid departures, which deserves further attention from employers: some bosses may misunderstand employees who leave quickly, or expect them to show loyalty to the company or make extra efforts without providing corresponding feedback and investment.
Therefore, if employers want new employees to stay, they also need to create a good employee experience, otherwise they are likely to become part of a rapid departure.
“Employers want me to make a good first impression within 90 days of joining, and I want them to do the same, ” one entrepreneur summed up the position of many employees.
(Extended reading, more workplace advice)
Resignation ｜ There are always signs that colleagues are ready to leave …
+ 6
Is it the first time you quit your job as the final answer?
10 Things to Consider Before Leaving
+ 18
[This article is reproduced with the permission of the "Manager".]

Robert FitzPatrick argued that traditional 'direct selling' has been in long decline and that modern MLMs are a distinct model built around recruitment and internal consumption rather than classic person-to-person retail sales.

Title:

Content: 'Direct Selling' - Avon, Tupperware - Is Extinct

Nov. 18, 2022 11:25 AM ETHLF, MED, NTCO, NUS, PRI, TUP, USNA3 Comments
Robert FitzPatrick
394 Followers

Summary

  • Direct Selling became obsolete generations ago. So how is it that millions today get recruited for "income opportunity" in "direct selling" and billions are traded on "direct selling" stocks?
  • Avon and Tupperware are cited by "multi-level marketing," or MLM, promoters as "proof" that MLM, e.g., Amway, Herbalife, is "direct selling."
  • Usable data on actual income and churn rates of MLM "direct sellers," market saturation, and retail sales to actual customers are not provided.
  • In fact, Avon and Tupperware for years have been walking dinosaurs, still trying to do "person-to-person" sales to end-users with commodity products, while MLMs hype "unlimited" income.
  • The shrunken and devolved state of Avon and Tupperware today reveals that direct selling is extinct. MLM is not, and never was, direct selling.

It is generally accepted that "direct selling" was killed off generations ago by mass merchandising, big box stores, mail-order and then the internet, among other societal changes. The "Fuller Brush man" is long gone. No one's at home. No one wants or needs or has time for a "personal" salesperson. Everything's in stores or online. And, even when "direct selling" still lived, no one ever went into that tough line of work thinking they would get rich from it.

Yet, each year, millions are recruited, and pay thousands, for the "opportunity" to work as "direct sellers," with promises and expectations of "unlimited" income. The number involved today is many, many times greater than ever worked in that "extinct" field decades ago. Billions are being traded on Wall Street for shares of "direct selling" companies. How can this be?

In my book, Ponzinomics, the Untold Story of Multi-Level Marketing, I document the death of "direct selling" and the 1945 invention of "multi-level marketing," or MLM. I describe how "MLM" falsely assumed direct selling's revered old identity. I trace MLM from its Adam, a little California-based company called "Nutrilite," to today's "industry" led by Amway, Herbalife (HLF) down 64% YTD, Nuskin (NUS) down 31%, USANA Health Sciences (USNA) down 49%, Primerica, Inc. (PRI) down 13%, and Medifast (MED) down 45%. MLM's financial solicitations for consumers to become "direct sellers" have reached into – and led to losses for – virtually every household in America.

In the newly invented "MLM," the main source of revenue shifted from end-user customers to the salespeople themselves who are incentivized to "be their own customer" by buying their own products. Obviously, no one makes money purchasing their own inventory, but MLM offered a unique reason to do so – "unlimited" income potential.

No More Need to Knock on Doors

All MLM "direct sellers" can potentially gain "unlimited" income by recruiting an "endless" chain of other "direct sellers." No need to pound the pavement and get rudely rejected at front doors any more. Each "direct seller" on the chain has to meet a quota to "qualify" for future rewards from their recruits who, in turn, are their "own customers" and recruiters too, ad infinitum. The chain can grow without continuous personal effort. The qualifying quota can usually be met by just making a personal monthly purchase of inventory. "Commissions" on all these transactions, all the way down to the "last ones in," flow up the chain. In the MLM pay plan, most of the total commissions go to the top 1%. So, all new "direct sellers" try mightily to recruit (and buy) their way to those top ranks. Of course, only a tiny few can ever be at the top.

Some people argued this is a pyramid recruiting scheme, inherently unfair and deceptive, and a counterfeit of direct selling. In the design and the pay plan, bottom ranks – the vast majority – will inevitably lose. They said constantly adding salespeople in any area destroys profitable retail selling potential, if any exists to start with. They cited data on 90-99% loss rates and huge churn rates among new "recruits" and asked, where are the retail "customers"?

While offering no data on retail customers or salespeople losses or market saturation, MLM promoters offered "proof" that MLM is direct selling by pointing to two long-established and respected direct selling companies in their ranks, Avon and Tupperware (TUP). Both companies were members of the Direct Selling Association, DSA, and both were "direct selling" icons, Avon for its "ladies" and Tupperware for its "parties." To any pyramid scheme accusations, MLM promoters indignantly countered: "Are you calling Avon and Tupperware pyramid schemes?"

Walking Dinosaurs

The truth for both companies is very different from the MLM-spin. Avon and Tupperware used to have differentiated products and real consumer demand. Their salespeople made money from their own retail sales. But moving into the 21st Century, Avon and Tupperware became walking dinosaurs, vestiges of the extinct era of "direct selling." They were still trying to base their businesses on their historical brands and on person-to-person retail sales to real customers, as direct selling companies always used to do.

Despite MLM's citing Avon and Tupperware, and thereby bestowing legitimacy on the "MLM" members of the Direct Selling Association, deep differences between those icons of the old era and MLM burst into public view in 2013-14. The two companies publicly quit the Direct Selling Association, charging ethics violations and DSA-member connections to pyramid schemes.

Avon's Long Good-Bye

Avon had been a true direct seller for decades before MLM was invented. But as the door-to-door model faded, Avon began a long decline. In 2000, Avon began shifting its focus to "incentivizing" salespeople to recruit more salespeople and getting them to buy inventory, MLM-style. In 2009, during the Great Recession, Avon ran its most expensive ad in history, on television during the Super Bowl. The ad never mentioned any Avon products! It only solicited "salespeople." Still, global revenue dropped continuously over the next 10 years. Avon stock value fell from over $30 to just over $3.

Finally, Avon split off its faltering North American business and sold it to the Korean company, LG Household & Health Care. Avon claimed to have 250,000 sales representatives in North America. The remaining global business was later sold to the Brazilian MLM, Natura (NTCO) down 50% YTD, which also owns the retailer, Body Shop. Though Avon global was much larger, Avon shareholders traded 3 shares of Avon for just one in Natura.

The Korean-owned segment of Avon in North America is now classic MLM, selling the proverbial MLM "income opportunity" along with "health" supplements, make-up, jewelry, clothing, scented candles, even toothpaste.

On the Canadian Avon website, Avon promotes the "income opportunity," urging prospects in large bold black type: "Think big. Sell Avon part-time, full-time, you decide how much! It’s your business, your way!"

A disclosure (legally required in Canada, but not in the USA) appears midway down a long webpage in tiny, barely visible gray lettering: "The 2020 earnings of a typical Avon Leadership Representative was between $0 and $2,620 in commissions and bonuses." That's $0 to $50 a week, before subtracting all costs! And the "disclosure" does not break out how much of that tiny return comes from personal sales or the "downline."

Avon quietly rejoined the Direct Selling Association. The Brazilian company, Natura, which took over Avon's global business in 2020, has lost over 60% of its stock value in the last year.

Tupperware on the Brink

Tupperware was one of the first "party plan" companies, which are technically a small subset of MLM. They employ an "endless" recruiting chain, but are more rooted in retail sales transacted at "parties." Tupperware used to have a popular brand with innovative, differentiated products. But, as true direct selling began to disappear, Tupperware went into decline. It added MLM-type "health and beauty" commodities to bolster recruiting appeal but then deleted them. This year, it began also selling its products in Target department stores. Its kitchen-related goods are generally not distinct from other brands. A 10-months "Income disclosure" for Canada (not published in the USA) showed that half the "party planners" were classified "inactive," earning less than $30 for the period on average. 94% of the "active" ones reportedly received about $12 a week on average, before expenses.

In the last 5 years, the stock value of Tupperware has dropped over 90%. Its latest financials warned investors the company may violate loan agreements, setting off speculation Tupperware might declare bankruptcy.

The shrunken and devolved state of Avon and Tupperware, the most famous brand-icons of "direct selling," makes citing them as a defense of "multi-level marketing" as extinct as their old business model.

This article was written by

394 Followers
Robert L. FitzPatrick is the author of the new book, Ponzinomics, the Untold Story of Multi-Level Marketing (2020),the first comprehensive history and analysis of the "MLM" phenomenon, addressing its political influence, propaganda techniques and use of cult persuasion. FitzPatrick is an expert in examining and revealing deception and fraud in Ponzi schemes, pyramid schemes and bogus home-based businesses. He served as expert or consultant in more than 30 court cases involving pyramid schemes and multi-level marketing. He is co-author of False Profits (1997), an examination of the values and beliefs that support the delusions of pyramid schemes. He was featured on NBC Dateline, ABC World News, and CBS 60 Minutes, the documentary film, Betting on Zero and the podcast, The Dream.He has been quoted in many newspapers around the world, including the New York Times and Wall Street Journal. His booklet, Pyramid Nation, has been translated to Chinese and used by government regulators in writing China's first laws on pyramid schemes. His booklet, "The 10 Big Lies of Multi-Level Marketing", has been translated into four languages and posted on numerous websites. His White Paper, "The Main Street Bubble", which details the extensive influence-buying of the direct selling industry was featured in a CNBC Documentary, Selling the American Dream. In 2005, he delivered a seminar to in Colombo, Sri Lanka to central banking representatives from that country as well as India, Bangladesh, Bhutan, Maldives and Nepal. Robert FitzPatrick has developed informational resources for consumers, journalists, academics and regulators including a multi-media PowerPoint presentation and a statistical analysis of the losses suffered by participants in pyramid selling schemes. He also published a widely read booklet on the landmark federal case brought against the Amway Corporation. He is a expert network member of GLG Research, and Coleman Research Group, as well as other networks of experts who are referred to clients for consultation, speaking and report writing. In this capacity, he has provided expert consultation to financial many analysts who sought information about multi-level marketing companies and pyramid and Ponzi schemes. Robert FitzPatrick co-founded and serves as president of Pyramid Scheme Alert, the first international organization to expose and prevent pyramid scheme fraud. He personally responds to hundreds of consumer and news media inquiries each year. He has served as consultant and expert witness for Attorney General or State Attorney offices in four states, the US Dept. of Justice, and in numerous cases involving distributor fraud and pyramid schemes. Robert FitzPatrick is not an investor in multi-level marketing companies. He has never owned and never plans to own stocks of multi-level marketing companies. He has never been compensated based on any stock's performance. He does not offer investment advice and he is not an attorney.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is for educational purposes only. It discusses fundamentals of the "direct selling" business model and the evolution of "multi-level marketing."

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.

FitzPatrick reported sharp YTD declines for several public companies associated with MLM or direct-selling channels, citing Herbalife down 64% YTD, Nu Skin down 31% YTD, USANA down 49% YTD, Primerica down 13% YTD, and Medifast down 45% YTD.

FitzPatrick described Avon's long decline, noting global revenue dropped over a decade, the stock fell from over $30 to just over $3, and Avon sold its North American business to LG Household & Health Care and later had its remaining global business acquired by Natura.

FitzPatrick reported that Natura had lost over 60% of its stock value in the referenced one-year period.

FitzPatrick reported that Tupperware experienced a collapse in market value, with its stock down more than 90% over five years, and that the company had warned it might violate loan covenants, prompting bankruptcy speculation.

FitzPatrick noted Tupperware also began selling some products through Target and that party-plan income disclosures in Canada showed very low average earnings for many 'party planners.'

FitzPatrick described Avon and Tupperware publicly quitting the Direct Selling Association in 2013–2014 over ethics concerns and later noted Avon rejoined the association.

The provided documents together indicate a recent pattern in which some MLM operations saw pandemic-driven recruitment and sales gains while other legacy direct-selling brands and publicly traded MLM-related companies showed multi-year declines and financial distress.

The articles emphasize reputational, regulatory, and income-distribution issues in MLMs, including the claim that most participants earn little or lose money and that commissions tend to concentrate at the top.

The provided context includes no clear example of a company fully abandoning a recruitment-based MLM structure to adopt a pure recruitment-free direct-sales business model, although some firms (for example Tupperware) moved part of their distribution toward retail channels.

In summary, pandemic conditions temporarily boosted recruitment and sales for some MLM players like EDUC while many legacy direct-selling icons and several public MLM-related stocks experienced substantial multi-year declines and financial stress in the recent period covered by these documents.