Palm: From Hype to Reality
Page 1 of 1
Palm (PALM) was one of the most over-hyped IPOs in history (and, yes, I helped provide some fodder for the hype machine). The stock price hit a high of $165 and, from there, collapsed. Now, the stock trades for $40-3/8. The market capitalization is $22 billion.
From its inception, Palm has been a hardware company, selling handheld devices. Hardware revenues tend to have relatively low margins.
However, with the introduction of the Palm VII, Palm is transitioning towards a subscription model. Of course, these revenues carry much higher margins. In fact, this is what happened to the cell business. Phones became free and the revenue model transformed to a subscription model.
But what makes Palm so attractive is that it is the de facto standard for digital handheld devices. Currently, the company has 68 percent of the worldwide market. History has shown -- such as in the cases with Microsoft and Intel -- that standards translate into great shareholder wealth.
The Palm platform is also proving to be extremely flexible. For example, the company announced an agreement with ePocrates to create customized Palm devices for physicians. ePocrates has a network of over 30,000 physicians.
Palm's dominance has been translating into strong financial results. In the company's latest quarterly report, Palm grew its earnings by 116 percent to $15.5 million. As for revenues, these jumped from $125.9 million to $272.3 million. What's more, Palm has was able to raise $1.17 billion in its IPO and private placements from Nokia, Motorola, and AOL.
Of course, a huge challenge for Palm is the competition. With the market for handhelds expected to grow substantially, competition is inevitable. Despite this, Palm may benefit anyway. After all, one of Palm's biggest competitors, Handspring, is a licensee of the Palm Operating System.
Further, Palm is a founding member of the Sync ML initiative. The group -- which includes such biggies as IBM, Nokia and Motorola -- is establishing the standards for universal synchronization for mobile devices.
Yet, it has been tough going for Palm during the past few months. Nasdaq fell hard. There was the filing of the IPO of Handspring. And there are rumblings of more competition on the horizon. For example, Microsoft is expected to announce next week its Pocket PC software system. This will likely have a short-term negative impact on Palm.
All in all, it seems that much of the bad news is reflected in the stock. Thus, Palm looks to be an intriguing investment opportunity.
Subscribe to internet.com's HotWatch, a monthly e-mail newsletter featuring Internet Stock Report's top 10 noteworthy Internet stocks for the month. Each month you will receive in-depth analysis on the top 10 Internet stocks to watch with the information you need to assess the fast-paced nature of Internet stocks. Staying on top of market changes in the Internet Stock market is what counts. You receive 12 timely issues sent to you by e-mail. Don't wait, our next issue will be out before you know it with a whole new perspective on the market. Sign up today at: e-newsletters