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Critical Path On Terminal Road

With the possible exception of owning a basket of e-tailer stocks, this may be the worst nightmare for Internet (or any other kind of) investors.

Shareholders of messaging outsourcing services vendor Critical Path could only watch in horror Friday as trading in CPTH was halted following reports that the company's board of directors was investigating whether fourth-quarter results were "materially misstated" last month.

How serious is the situation? Critical Path's board has suspended (the euphemism was "administrative leave") company President David Thatcher and sales VP William Rinehart and warned that it "has discovered a number of transactions that put into question the Company's financial results."

When a corporate board is talking like that, rather than slipping into wagon-circling mode, you know there's a big problem.

Whatever turns up in the internal probe, one result is virtually certain: Critical Path shares have been rendered all but worthless. CPTH dropped $6.20 to $3.86 before trading was stopped Friday. And that plunge comes shortly after a 55% one-day loss from $20 to $9 on Jan. 19, the day after Q4 results were reported.

Even the post-earnings bargain-hunters are going to get burned in this deal, for it's not likely that Critical Path will ever regain the market's trust, especially since the Q4 results as stated (and remember, the numbers may have been prettied up) were atrocious.

The company reported a Q4 loss of $173 million, or $2.44 a share, compared with a loss of $58.7 million, or $1.41, a year earlier. Excluding amortization and stock-based compensation, CPTH lost $11.54 million, or 16 cents a share, disastrously short of consensus estimates calling for a profit of 1 cent per share.

If that's not bad enough, Critical Path forecasts a loss of 15 cents to 16 cents in the first quarter, versus previous street estimates of a 3-cents-per-share profit.

Given the company's surprisingly poor performance, the legal troubles now surrounding it and the class-action lawsuits already in process, current shareholders should recognize a hopeless situation and sell - if they can. Except that I wouldn't recommend anyone buy CPTH shares.



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