RealTime IT News

NSSI's Miracle Mystery Flight

Investors who bought shares of Network-1 Security Solutions when the maker of Internet firewall software went public on Nov. 12, 1998, had little to cheer about during the stock's first year of trading.

Actually, I'm being kind. They had absolutely nothing to cheer about.

Shares of NSSI (NSSI) were offered at $6, opened at 6-3/4 and closed at 6 9/16 on that first day of trading. The stock poked its ahead above $8 per share a handful of times early last year and then, like a glider that suddenly loses its tailwind, began a long, slow drift downward.

By last October, when NSSI closed at 1-1/2 no less than four times, investors didn't even need a parachute to bail out of this seemingly doomed craft. They could have just stepped off a wing and hopped onto the ground.

In the past three months, however, NSSI's flight pattern has resembled that of an Internet IPO rocket. Shares were trading Thursday afternoon at an all-time high of 16-3/4, a dizzying 604 percent above their 2-3/8 closing price of Oct. 29 and 320% above their Nov. 30 close. Houston, we have no problems.

And whereas Network-1's market cap in mid-October was as low as $6.6 million, by Thursday it was a relatively brawny $70.5 million.

What makes this dramatic surge all the more perplexing is that there doesn't seem to be strong catalyst behind it. Sure, the City of Hope, a cancer research and treatment center near Los Angeles, dropped a lawsuit against Network-1 in early November alleging substandard consulting services.

But a week later NSSI released Q3 earnings that should have done nothing to quicken the pulse of investors. Revenue for the quarter ended Sept. 30, 1999 were $454,000, down from $671,000 in the year-ago quarter. The Waltham, Mass.-based company attributed the drop to the termination of an old line of firewall products in lieu of new firewall software that had yet to ramp up.

Net loss for the quarter was $1.4 million, or 32 cents per share, compared to $1.2 million, or 52 cents per share, in Q3 '98. For the nine months ended Sept. 30, per share loss was $1.17, down from $1.69 in the same nine months of the previous year.

Perhaps it was this reduction in per-share losses that emboldened investors. It's impossible to say. Still, with NSSI now trading at 44x TTM revenue, I wouldn't count on much more altitude unless the company's Q4 earnings report shows substantive revenue growth and further reduction in earnings.

Otherwise, I'm prepared to report an unidentified flying object.


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