The Mystery

It has the highest burn rate among Internet companies, according to Barron’s. Its net loss for the third quarter was nearly double its loss in last year’s Q3. Its bizarre-looking stock chart shows that, from May through October, shares barely moved from $15.

Yet, as noted in yesterday’s StockTracker, Internet marketing and mall kiosk network builder so far has the top-performing stock among all ‘Net companies this year, with a 211% gain through Tuesday’s trading.

How has GENI managed to buck the fierce correction that has devastated the vast majority of Internet stocks this year, especially when it appears to be the biggest violator of the Golden Cash Burn Rule of 2000 (otherwise known as a return to rationality)?

I wish I knew, but I’m as mystified as anybody.

However, one reason may be that the stock is flying under the market’s radar screen. It has attracted little coverage and generates very low trading volume – the 30-day average is 69,000 shares. Also, its float of 2.8 million shares is one of the tiniest among ‘Net stocks.

The reason this may be significant is that CEO Ramy El-Batrawi has been buying up GENI shares on the open market, purchasing 100,000 shares on Nov. 1 – almost half the volume on that day.

In total, El-Batrawi has snatched up 275,000 GENI shares through open market transactions – a good way
to bolster a stock, though El-Batrawi has said in public statements that he considers GENI shares to be undervalued.

Indeed, on a simple revenue-multiple basis, GENI’s valuation of 2.8x trailing 12 months’ revenue of $41.3 million is attractive relative to most Internet companies.

Still, the company continues to bleed red, with a third-quarter net loss of $4.2 million, or 69 cents a share, compared to a net loss of $2.3 million, or 43 cents per share, in the year-ago quarter. This is down 42%, however, from the second quarter loss of $7.3 million, or $1.29 per share.

Revenues in Q3 nearly doubled to $16.7 million from $8.8 million in last year’s third quarter – good numbers, but hardly outstanding among Internet companies, including many that actually generate a profit.

While bills itself as a “leading developer of Internet technologies and Internet companies,” a look at its Web site reveals an odd assortment of revenue streams and business units.

The company likes to highlight its Centerlinq network of mall kiosks, and seems to be betting its future on the network’s growth. Right now Centerlinq, where shoppers can get information and store coupons, is installed in 21 shopping malls in six states, with deployments scheduled for 31 more malls over the next few months.

But Centerlinq has generated next-to-no revenue so far – $229,000 this year through September. That’s 0.7% of GENI’s $32.2 million in YTD revenues. The vast majority of sales – $23.6 million YTD – comes from the company’s media group, which conducts direct response advertising campaigns and resells media time to third parties.

It’s no wonder why the mall kiosks aren’t pulling in the bucks: Though GENI touts Centerlinq’s 22 million impressions per month, that’s about 1 million per mall per month. Not exactly heavy traffic, in my book.

Besides Centerlinq and the media group, derives revenues from car rentals, creative design and graphic services, tenants of their properties and the sale of videos based on John Gray’s “Men Are From Mars, Women Are From Venus”; a device for painting rooms in houses; an audio cassette money management system; tapes and books on how to buy real estate; an abdominal exerciser; and a fishing lure.

This doesn’t sound much like an Internet company to me. (Hey, maybe that’s it! GENI isn’t an Internet company.) More to the point, it doesn

‘t sound like a business with a coherent, focused strategy. And as an investor, that’s one of the main things I look for. has managed to defy gravity for most of this year. I just can’t see how it can continue.

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