Gateway Sees Stock Surge After Upbeat Earnings Announcement

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Computer direct marketer Gateway Inc., San Diego, only beat its earnings projections by a penny per share for the second quarter, but it wowed analysts enough with its optimistic outlook to drive its stock up more than 16 percent in one day of trading.


After reporting a 47-percent year-over-year increase in profits, to $89.23 million, on an 18-percent gain in revenues, to $1.91 billion, the company's stock surged to close at $73 a share the following day, up from $62.875 on the preceding day.


While the $73 per-share price was still below the company's 52-week high $84.50, it was more than double its low of $36.125, and it continued its climb in the following days.


Louis J. Mazzucchelli Jr., an analyst who follows computer-company stocks for Gerard Klauer Mattison, New York, said the Gateway's executives provided a convincing argument that the company's growth strategy was sound during their conference call to discuss the earnings report.


"The tone of the conference call was very upbeat, and the rest of the outlook was very strong," he said. "That, coupled with some of the market share data that came out, showing that Gateway is increasing its market share, is what [drove the stock price up]."


Mazzucchelli said Gateway's sales to small businesses were tracking ahead slightly, and its sales in the education were strong. He also said it was encouraging that the average selling price of Gateway's personal computers, $1,905, declined only 2 percent from first-quarter levels, despite an onslaught of free-PC offers by Internet service providers.


The company addressed this in its conference call, saying that consumers realize that "a lot of these deals literally have more strings attached to them than Pinocchio."


The company also said it reached its goal of acquiring 400,000 subscribers to its own Internet service, Gateway.net, by the end of the quarter, and was aiming to hit 800,000 subscribers by year-end.


In other news, the company reported that it sealed an agreement with GE Capital Information Technology Solutions to jointly offer Gateway products to GE's large corporate clients.


"It will allow them to address the global 2000 accounts, which they really haven't had a strong presence in," said Mazzucchelli, adding that the GE alliance would be "a small positive" that won't manifest itself in Gateway's revenues for a while.
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