Date 8/31/07 Blue Nile (NILE):Earnings

Current Price $82.93

review, maintain hold.
52WK HI $98.50 • Industry: Internet Services
52WK LO $33.03 • NILE: NASDAQ; $82.93
EPS (TTM) $0.87 • 12-month price target: $70.00 Downgrade to SELL 5/21/07 :
Shares Outstanding 16.6M $53.05 Target: $46
Market Cap. $1 HOLD initiated 2/7/07: $39.18
Dividend Yield NA Target: $40.00
Price/Earnings (TTM) 62X
Price/Sales (TTM) 3X
EV/Revenue (TTM) 2.6X
EV/EBITDA (TTM) 29X
EBITDA (TTM) $23M Maintain SELL 8/31/07 : $82.93
Target: $70

Brian Bolan
Director of Research
Technology
Jackson Securities, LLC
300 S. Wacker Dr., Suite 2450
Chicago, IL 60606
Ph: (312) 253-0578
Fax: (312) 986-0560
bbolan@jacksonsecurities.com
Company Description
Blue Nile is a leading online retailer of high quality diamonds and fine
jewelry. Blue Nile specializes in the customization of diamond jewelry with
a “Build Your Own” feature that offers customers the ability to customize
diamond rings, pendants and earrings. While not providing the lowest
cost diamonds, the company believes its formula of no pressure sales,
high quality educational material and reasonable prices will result in higher
profits.
Valuation and Recommendation:
Blue Nile has performed admirable over the past few months and the
stock continues to soar as if to make Icarus envious. We certainly have
missed the boat on this stock, but we continue to believe that the stock will
eventually trade on its fundamentals which suggest a lower per share
price.

Jackson Securities, LLC seeks to do business with companies

covered in its research reports. As a result, investors should be
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also refer to the important disclosures found on page number 4.
Analyst Certification is found on page number 4.
Blue Nile (NILE)

Earnings Release for 2Q07

Blue Nile (NILE) announced revenue of $72.1M for the second

quarter of 2007. This represents an increase of 26% from the same
period a year ago, and well above our estimate and that of Wall
Street.

The company posted earnings of $0.23 per share beating our

estimate of $0.17 and Wall Street consensus of $0.17 per share.
This quarter was a strong one indeed, but the fact remains that then
CFO Diane Irvine talked Wall Street off of lofty expectations for
the quarter during the first quarters conference call.

Having not been invited to participate on the conference call or any

follow up session, we have decided that we no longer be listening
to guidance that tells us to lower our estimates then beats them
handily.

Orders and ASP’s

The average sales price (ASP) was $1,630, down 0.4% from a year
ago, and up 8% from the prior quarter. Orders were up 27% from
a year ago, well ahead of our expectations of approximately
40,300. We have modeled in assumptions for next quarter of an
ASP of $1900 and total orders just over of 38,000. Those
assumptions give us a topline number that is well above guidance.

Our view on the stock

We have certainly missed the boat on this one, and we believe the
stock has performed as well as it has for a few reasons. Certainly
the small number of shares outstanding creates a tight float and the
potential for frequent short squeezes. The solid operational
performance continues to support the overall trend the stock is
exhibiting, but we believe that investors need to be disciplined
when it comes to companies like Blue Nile. The valuation is
stretched and we believe investors should sell shares.

Our target price has been adjust to $70, which is still a rich
multiple of 61x this years earnings.

Brian Bolan 2
Director of Research
Blue Nile (NILE)

Blue Nile Earnings Model

Brian Bolan 3
Director of Research
Blue Nile (NILE)

Disclosures:

Analyst Certification
I, Brian Bolan, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities
and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or
views expressed in this research report. I may be compensated in part based on the overall profitability of Jackson Securities, LLC, which
includes earnings from investment banking and all other aspects of the firm’s business.

Conflicts of interest:
Neither Jackson Securities nor any of its publishing analysts or their immediate family members has a position in the securities described
herein.

Compensation:
• The research analyst has not received compensation based upon investment banking revenues or from the subject company in the last
12 months.
• Jackson Securities has not in the last 12 months managed or co-managed a public offering of securities, received compensation for
investment banking services from the subject company or any compensation for products or services other than investment banking
• Jackson Securities will seek investment banking compensation from the subject company in the next 3 months.

Position as Officer or Director:

Neither the research analysts nor members of their immediate households occupy positions as an officer or director with the
company/companies mentioned in this report.

Market Making:
Jackson Securities does not make a market in this stock

Explanation of Ratings:
Buy - Expected 12-month absolute performance of +10% or higher than the market price at which time the rating was issued.
Hold - Expected 12-month absolute performance of +5% to –5% from the price at the time the rating was issued.
Sell - Expected 12-month absolute performance of –10% or lower than the market price at which time the rating was issued.

Distribution of Ratings:
Jackson Securities, LLC has a distribution of ratings among its coverage universe as follows:
Buys – 50.0% (18 of 36 active recommendations)
Holds – 41.7% (15 of 36 active recommendations)
Sells – 8.3% (3 of 36 active recommendations)

Jackson Securities has provided investment banking services within the previous 12 months with the following percentage of the companies
they have rated:

Buys – 0.0% (0 of 36 active recommendations)

Holds – 0% (0 of 36 active recommendations)
Sells – 0% (0 of 36 active recommendations)

Risks: General economic conditions, economic slowdown/recession, adverse industry news.

Other Important Disclosures and Disclaimers

Disclaimer: This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentioned herein. This material should not be construed as an offer to sell or the solicitation of an offer
to buy any securities mentioned herein in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. This document is for general information only,
and it does not constitute a personal recommendation or take into consideration the particular investment objectives, financial condition or financial needs of any clients. Before acting on any advise or
recommendation in this research report, clients should consider seek professional advice. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may
occur.

The information contained herein has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Any opinions expressed herein are statements of our judgment
on the date appearing on this material only and are subject to change without notice. We endeavor to provide updates on a reasonable basis of the information discussed in research reports, but there may be reasons
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Brian Bolan 4
Director of Research