NetZero.com: Does It Have the Right Stuff?

With the market valuations being trashed, companies are trying to find
creative ways to boost values. One is to announce some type of “wireless”
deal.

Wireless does represent a huge market opportunity for Net applications. Of
course, not all these companies will be winners. What’s more, wireless is
still a nascent market. Expect lots of roadkill on the path to riches.

The big wireless event for this week was the deal for Qualcomm to purchase
of 10 percent of the stock of NetZero (NZRO).
The amount is about $144 million.

With secondary offerings shut down, companies are looking for alternative
means for financing — especially for those companies that have high burn
rates. For NetZero, the $144 million is a big plus (the total cash position
is $280 million). As a result, the stock had a very nice run.

NetZero is a provider of free access to the Net. With the increased
risk-averseness of investors, the word “free” in a company’s business model
is definitely a scary thought. Well, in the case of NetZero, it will rely
on advertising as a source of revenues. Unfortunately, for investors, the
word “advertising” is also anathema.

But perhaps there is a better way and it seems that NetZero is betting that
wireless is the answer. NetZero will have access to Qualcomm’s wireless CDMA
[code division multiple access] and High Data Rate [HDR] technologies. For
instance, with HDR, it is possible to deliver moving images over small
screens, which is important for online advertising.

But keep in mind that it will take time to reach critical mass. Initially,
NetZero and Qualcomm will merely promote each other’s existing products with
links from their Web sites. Also, NetZero will help to distribute Qualcomm’s
Eudora e-mail client. As for the joint efforts to create wireless Net
products, this will likely take some time. According to the chief executive officer of NetZero,
“Those plans are still being contextualized.” So, do not expect a huge
impact near-term. In fact, the Web Wireless Wonder has shortfalls. For
instance, the tiny screens make it difficult to surf the Net and buying from
phones is also not very easy. The competition will undoubtedly be fever
pitch.

Rather, it is more important to focus on the core business, that is, the
company’s free ISP services. Yesterday, the company reported outstanding
results. The company signed a four-year deal with General Motors that could
result in $100 million in revenues. NetZero also reached 4 million
subscribers.

But the stock has already skyrocketed. Thus, it is better to wait until
buying this stock. I’m sure there are many people who bought the stock when
it was over $20 per share. So, these people will be tempted to bail out when
the stock spikes. So, wait for things to subside before buying this one.


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