From: Adam Rifkin -4K (adam@XeNT.ics.uci.edu)
Date: Fri May 19 2000 - 14:47:03 PDT
[Thanks, Linda.]
MicroStrategy is running low on cash and may not be able to fund
development of Strategy.com ... what a pity ...
> STREET WISE
> BY AMEY STONE, May 10, 2000, BusinessWeek
> http://www.businessweek.com/investor/
>
> Will MicroStrategy's Slide Ever Stop?
>
> To its restated earnings and an SEC investigation, add low cash reserves
> and analysts' abandoning it.
>
> If you bought stock in software company MicroStrategy (MSTR) at the end
> of February for $150 a share, you might be asking yourself, "Why bother
> selling it now?" Although it gained 122%, to a high of $333 on Mar. 10,
> you surely have been watching in horror the past few weeks as it
> plummeted, closing May 9 at $21.50. For investors with lots of money and
> a small remaining stake, whether to hold or to sell is a fair question.
> But shareholders less sanguine should take note: The way the stock price
> is acting lately -- it fell 1.5 points, or 6.5%, on May 9 -- plenty of
> investors believe MicroStrategy's slide is not over.
>
> But in a fall from grace as dramatic as this one, it almost seems
> incidental to mention that MicroStrategy's core business is selling
> "data-mining" software, which helps companies slice and dice customer
> information to stay abreast of new trends in their industries. The stock
> really soared on hopes for the company's Strategy.com division, which
> delivers personalized information about weather, stock prices, and other
> topics to mobile devices, such as cell phones and personaly digital
> assistants.
>
> Hopes for a brilliant future were dashed when MicroStrategy revealed in
> March that it had run afoul of Securities & Exchange Commission
> accounting guidelines. The stock fell 62%, from $227 to $87 on Mar. 20,
> after the company said it would have to restate its financial results
> for 1998 and 1999 to comply with SEC rules on revenue recognition. The
> company's mistake was booking revenue from multiyear sales contracts
> immediately, instead of spreading them out over the life of the
> contract.
>
> "SIGNIFICANT UNKNOWNS."
>
> Wall Street, it seems, doesn't really know how to assess the company's
> prospects anymore. While First Call Corp. tracked nine analysts who
> covered the stock at the end of last year, only two have earnings
> estimates now, says Chuck Hill, First Call's research director.
> "Clearly, the analysts are either having trouble figuring it out or have
> totally thrown in the towel on the company and dropped coverage."
>
> The consensus estimate for the two firms maintaining coverage is for a
> loss of 94 cents in 2000 and $1.24 in 2001. Back in March, before the
> accounting problems came to light, analysts predicted profits of 25
> cents per share in 2000 and 39 cents in 2001. "It's not like
> MicroStrategy had a hiccup and lost a year and now is back on track,"
> Hill says.
>
> Mark Murphy, an analyst with FAC/Equities, rates the company a "strong
> buy." But he readily admits, "there are some significant unknowns, and
> the thing the market really doesn't like more than anything else right
> now is an unknown." In an Apr. 27 research note, Merrill Lynch analyst
> Chris Shilakes referred to an "information vacuum." He added that he
> expects trading in the stock to remain volatile until Wall Street gets
> more comfortable with the company's future earnings potential. He has an
> "accumulate" rating and predicts the stock "will stage a slow rebound"
> to around $35 a share.
>
> OVERREACTION?
>
> MicroStrategy used to stand out as the rare Internet business with real
> profits. But the profits have evaporated without those future sales on
> the company's ledger. The company now has losses on its books for all of
> 1999. And on Apr. 26, it announced first-quarter results that came in
> far below analysts' already reduced expectations. Wall Street had been
> anticipating an operating loss of 14 cents a share for the first
> quarter, but MicroStrategy lost 37 cents a share, according to First
> Call. The stock fell an additional $5, to $24 5/8 on Apr. 27.
>
> The company -- as well as some analysts -- insists that investors have
> overreacted. All the future revenues booked for 1998 and 1999 eventually
> will materialize, Murphy says. "People are completely overlooking the
> fact that the long-term value of the business is unchanged by the change
> in accounting," he adds. But the stock price is 75% lower than it was
> after the first announcement on restated earnings. Since then, the
> company has restated earnings a second time, reflecting losses rather
> than profits for the past two years, and it has indicated the SEC isn't
> finished investigating the accounting situation. MicroStrategy declined
> to comment on these issues.
>
> No one has been hit harder by the savage repercussions of recent weeks
> than MicroStrategy CEO Michael Saylor. The brash 35-year-old executive,
> who owns a 56% stake in the company, saw his personal net worth dive
> from nearly $10 billion to less than $4 billion in one day. Apparently,
> his troubles are far from over.
>
> UNAPPEALING OPTIONS.
>
> First, MicroStrategy was forced to cancel its plans for a secondary
> stock offering, which would have provided needed funds to power
> Strategy.com to the next level. Now, investors wonder whether
> MicroStrategy will still be able to spend millions on the Strategy.com
> venture, perhaps incurring greater losses. The company could be forced
> to scale back on its ambitious plans, limiting the potential of the
> widely touted wireless opportunity. Neither option is appealing.
>
> To make matters worse, with operating expenses escalating, MicroStrategy
> ended last quarter with only $17.5 million in cash on its balance sheet --
> $13 million less than the previous quarter. Concerns about how quickly
> it's running through its cash on hand have surfaced, even though
> the company says it's crucial to continue to market Strategy.com.
>
> Meanwhile, numerous shareholder lawsuits and the SEC investigation
> continue to cast doubt on the company's ability to secure more
> financing. "It would be a real good sign if they could announce some
> kind of financing," says Murphy, who thinks the company could still do a
> deal.
>
> But the overall market currently likes few things worse than a
> technology stock with little cash and no profits for the foreseeable
> future. That leaves little hope for a near-term rebound in the shares.
> It's "kind of comical," notes Murphy, that investors were wildly bullish
> on MicroStrategy when it was trading above $200, but now that it's in
> the $20-dollar range, they're bearish.
>
> Comical, perhaps, but hardly unreasonable. Investors who can still get
> away from Saylor's brainchild with some cash, can likely find far safer
> places to wait out the tech correction than in MicroStrategy's corner.
---- Adam@4K-Associates.ComYou're really doing it for the psychological experience. It's the kind of thing where you look back on your life, you hope you made a difference. -- Andy Bechtolsheim (thanks, jfeise)
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