RealTime IT News

Beyond Damage Control?

Investors expect most Internet companies to lose money for a while as their business models evolve and their target markets mature. However, there are limits to this tolerance, and online software retailer Beyond.com has exceeded them.

The resignation of CEO Mark Breier and the elimination of 20% of its workforce, both announced Wednesday, are inevitable events for a company whose stock chart slopes south and which continues to sink deeper and deeper into debt even as revenues grow at healthy multiples.

Though a Linux-related announcement on Monday has sparked a rally that sent (BYND) shares to 8 15/32 by Wednesday afternoon, the stock recently had been closing below $7 per share, a far cry from last April, when it was routinely topping $30.

Early this month Beyond.com warned that sales in the crucial fourth quarter would not meet analysts' expectations. Even worse, the $34 million to $35 million in Q4 sales will fall below the Q3 revenue of $36.6 million. This ill-timed stumble, coming during the recent holiday shopping season, interrupts a string of sequential quarterly growth in the 35%-40% range.

The company also said it expects a Q4 loss of 65 cents to 68 cents per share, which would be below consensus street guesstimates of 76 cents. Still, coming on top of a per share loss of $2.68 through the first nine months of last year, it's not likely that this news will be greeted with enthusiasm. Especially when the net loss of $90.8 million dollars through three quarters ended last Sept. 30 is more than five times the net loss in the year-ago period.

Beyond.com will announce its Q4 and '99 earnings after the market closes on Jan. 26, a week from today. In preparation the company has been engaged in damage control, announcing last month a new strategic direction -- away from consumer software sales and toward corporate B2B and government customers -- issuing the recent warning about earnings, cutting back on advertising during the holiday quarter, and now, parting with the CEO and slashing the payroll to signify a fresh start.

If you believe Beyond.com's new focus on the corporate and government markets can turn the company around, the stock is an excellent bargain relative to most Internet players, at least on a simple revenue-multiple basis. With a current market cap of $306 million, BYND is trading at 1.6x estimated 1999 revenue.

But the B2B market is no less pitiless than the e-tail sector, and it would take a great leap of faith to bet on a company with no CEO, mounting losses and unknown prospects in its newly chosen field of battle.


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