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 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 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. 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’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

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