Cross Media Takes Hit, Highlights Market's Fall
Its price plummeted 79.1 percent from June 25 to July 29, dropping from $10 to $2.09. The free-fall was the acceleration of a trend that started earlier in the year as the stock had traded at $13.25 April 1 before dipping to $11.93 on May 29.
Recent events have been anything but positive, as outlined in a research report from brokerage firm Taglich Brothers Inc. Cross Media was downgraded to a "hold" from "buy" as Taglich Brothers withheld its price target due to an ongoing Federal Trade Commission complaint as well as "possible balance sheet liquidity concerns, reduced earnings expectations, increasingly competitive business environment and weaker-than-expected first-quarter results."
On April 11, the FTC issued a news release alleging illegal sales practices by magazine telemarketers Cross Media Marketing, Media Outsourcing Inc. and three principals of the corporations. Charges included telemarketers misrepresenting and failing to disclose adequately the costs and conditions of subscription agreements and buying-club memberships and failing to cancel subscriptions and pay refunds.
Cross Media, New York, reported last month that on July 16, the FTC, following a settlement meeting with the company, filed a motion with the court to postpone the hearing scheduled for July 23. The motion, according to Cross Media, stated that the FTC's most recent discussions with Cross Media on July 12 had produced "significant progress toward development of a consent order to resolve the allegations in the complaint [and though] several important issues must still be resolved, the plaintiff agrees that the parties have made progress."
It also reported last month an expected second-quarter loss, despite higher revenue, and the cutting of its 2002 forecasts "due to poor magazine sales and the weak advertising market." For the second quarter, it expected to report a per-share loss of 11 cents to 14 cents on revenue of $35 million to $38 million, compared with year-earlier revenue of $23.6 million and profit of 20 cents per share.
"The FTC situation impacted the sales force, its telemarketing and cross-marketing efforts, [and] the company became less competitive," said Luis Martins, an analyst with Taglich Brothers, New York. "There were some issues with getting the sales force motivated and getting them to understand what the complaint was related to. I suspect it's not going to be settled tomorrow. It's going to take some time. They are in negotiations, and they are trying to be aggressive.
"The stock price reacted more to the fact that there would be earnings disappointments. Over time, as the company takes care of its internal problems and gets back on track, the stock price is going to react accordingly. After two or three [consecutive] quarters of earnings improvements, and getting some bad news out of the stock, it could come back."