Blue Nile Inc.NILE

Morningstar Rating

Stock Research and Analysis

by Kimberly Picciola

Blue Nile is well positioned to gain market share during the next several years because of its competitive prices and dominant place in the nascent market of online jewelry. The retailer's value proposition has improved in recent quarters because of its diamond sourcing model which gives the firm the ability to pass on savings to consumers from lower diamond prices sooner than traditional chains, which take possession of inventory before the sale. Read more

Bulls Say

Blue Nile's business model creates a negative cash-conversion cycle, which allows the retailer to collect money from its customers before it's obligated to pay its suppliers.

The company has a scalable business that requires little capital investment to grow. It has expanded into the United Kingdom and Canada and ships to more than 35 markets in Europe and Asia.

Blue Nile has established itself as a reputable seller of certified diamond jewelry online. Referrals and word of mouth have contributed to the growth of its business.

We think demographic trends are in this retailer's favor. The children of baby boomers, also known as echo boomers, are reaching the age of marriage and are more accustomed to online purchases.

Blue Nile is the leader in sales of high-end jewelry online. Read more

Bears Say

A challenging economic environment is resulting in weak demand for discretionary goods. Additionally, tightening credit markets have led to a drop in big-ticket jewelry purchases.

A shakeout in the jewelry industry is resulting in liquidation sales, pressuring even the strong players in this category.

Blue Nile's business model depends on exclusive agreements with suppliers. Any changes could affect its growth prospects.

Although Blue Nile seems to have its operations in check, a major misstep could tarnish its reputation.

In 2007, De Beers, which is known for its control over the price and supply of diamonds, launched a Web site to sell diamond engagement rings online. This could pose a threat to Blue Nile. Read more

Strategy

Blue Nile is continually investing in enhancing its customers' experience through improving the content and usability of its Web site. It maintains exclusive supply arrangements with diamond manufacturers that enable it to provide diamond jewelry at a 20%-40% discount to what a traditional jeweler would charge. Read more

Management

Diane Irvine stepped into the CEO role in February 2008, taking the reins from Blue Nile founder Mark Vadon. The transition has been smooth which is no surprise given Irvine has been key to building the company, serving as CFO since 1999 (the year it was founded) and most recently as president. Read more

Profile

Founded in 1999, Blue Nile is an online retailer of diamonds and fine jewelry. Diamond engagement rings account for a majority of its sales. Through exclusive agreements with suppliers, Blue Nile displays thousands of certified diamonds on its Web site that customers can pair with various settings to customize engagement rings and other diamond jewelry. Read more

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