Net Firms Smarting From Barron's StingA cover story in one of business and finance's most venerable publications put a beating on high-flying Internet companies early last week, prompting many investors to ditch Web shares - and making some dot-coms scream foul.
In an article titled "Burning Fast," Barron's warned investors that a slew of Net firms are blazing through their cash and listed the companies most likely to get rubbed out in the coming purge.
The Dow Jones & Co. weekly publication hired Net stock evaluation firm Pegasus Research International to gauge the time left for 207 companies, assuming their revenue and expenses would continue at the same rates the companies reported in the fourth quarter.
Among the review's prominent short timers were Net grocer Peapod, health sites drkoop.com and VitaminShoppe.com, Egghead.com, online printer ImageX.com and incentives site MyPoints.com, all of which were given less than six months before "burnout." One notable e-tailer, CDnow Inc.,
doesn't have enough money to get to the end of March, the review said.
Not so fast, said CDnow.
The music retailer scrambled to put out a statement refuting the Barron's claims last Monday, accusing the publication of ignoring commitments it received from Time Warner and Sony to inject $51 million into the company. Combined with austerity measures such as slashing marketing and administrative costs, that funding should be enough to keep CDNow running at least six months, and maybe through the year, the company said.
Of course, a lot of investors might consider six months before ground zero only slightly less disquieting than half a month. The CDNow statement added that the company has hired a consulting firm to help it look into a "complete range of strategic opportunities" that might salvage the situation.
So does that include possibly selling out?
"Absolutely," said Deborah Vondran, a spokeswoman in CDNow's investor relations arm. "Yeah, they're looking at everything."
If someone does buy CDNow, they might get it for a bargain. As of press time, the company's shares were hovering like a low fog at or near the cheapest range in their history.
San Francisco-based incentives firm MyPoints took umbrage to the Barron's findings as well. The article says MyPoints' filed to raise $185 million with a stock offering to the public, and then points out that a large portion of those shares won't go toward running the company because they're being sold by insiders.
But when Barron's calculated how much time MyPoints has before burning out - about four and a half months, it said - it ignored the funds from the secondary offering altogether. A calculation that included the funds would have given MyPoints 25 months of cash, "much more than we need to bring this company to profitability," said MyPoints vice president of corporate relations Geoff Ossias.
"They knew we had done the secondary," Ossias said of Barron's. "That's what really burns me up. They claimed it was difficult, [that] there are always different companies, different timing. But they put our secondary in the body of the story."
Jack Willoughby, who wrote the Barron's piece, told iMarketing News the forecasts were based on a statistical snapshot as of the beginning of January, a methodology designed to put all the listed companies on an equal footing. The publication might have missed some adjustments since the beginning of the year.
"Naturally, we didn't catch everybody," Willoughby said. "By the time one of these things is absolutely perfect, it's useless. So the idea is to give investors good value for their money. If we made mistakes, we apologize."
MyPoints shares lost almost 12 percent the day the article came out, and were trading roughly in the same range at press time on Thursday.