MCOM Shows Long-term Potential
by : Rajul Kadakia
Senior Research Analyst
Metricom, Inc. (MCOM), a developer of wireless network products &
services, is currently up $6 7/16, or approximately 29 percent from the
previous day's close at $28 3/8. The stock gapped up only slightly at
the open, but then quickly ran up establishing a new 52-week high of $28
3/4 on strong volume. The stock is currently trading near its high for
the day on 2.7 million shares, or 3.5 times its average 30-day volume.
MCOM closed up more than 43 percent on June 21, after the company
announced that MCI WorldCom (WCOM) and Microsoft Corp. co-founder Paul
Allen of Vulcan Ventures have invested $600 million to speed development
of its nationwide network for wireless data and Internet services.
Together both companies purchased 60 million new convertible preferred
shares of Metricom stock at $10 per share, which gave Vulcan Ventures
49% ownership and MCI WorldCom 38%. In addition, MCI WorldCom also
agreed to buy $350 million in Metricom services over five years to
resell to its own customers. This will allow MCI to compete with
rivals AT&T Corp (T) and Sprint (FON), who both currently have wireless
service divisions. Before MCI's investment in Metricom, investors had
been concerned that MCI may fall behind its competitors since it lacks a
wireless network.
Metricom will use the $600 million to expand its Ricochet service, which
provides fast wireless access to e-mail and the Internet to users of
portable and desktop computers. Since the Ricochet network does not
use phone lines, the service bypasses such common problems as busy
signals and expensive connection time. Demand for wireless
communications is increasing as more and more corporations look for a
highly mobile, cost-effective communications solution, especially with
e-business exploding.
1-Year Chart of MCOM Showing a Return of More Than 225 Percent
MCOM's stock price has been rising daily for the past five trading
sessions. Considering the stock has moved up more than 150 percent in
just the past ten trading sessions,breaking through several resistance
levels, we should see it pull back slightly over the next several days.
However, investors should not hesitate much before plowing back into the
stock on a minor pull back. On the downside, we may see the stock test
its support level of $22 before resuming its bullish trend over the next
several weeks. MCOM has returned investors more than 225 percent over
the past twelve months.
Although, MCOM reported a net loss for the first quarter of 1999
totaling $15.0 million, or $.80 per share, versus a net loss of $11.7
million, or $.69 per share for the comparable quarter last year, the
company's revenues increased significantly. MCOM reported revenues of
$4.2 million for the first quarter, up from $3.6 million for the same
period in 1998. This represents a 16% increase in revenue over first
quarter 1998 and 13% above fourth quarter 1998 revenue of $3.7 million.
Fueled by investments from Paul Allen and MCI Worldcom and the burst in
wireless communications, we should see MCOM achieve significant new
highs over the long term.
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