Just a reminder that things can go wrong with these stocks: <g>
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Posted at 12:10 a.m. PDT Tuesday, October 26, 1999
Online vendor caught in a
bind
BY MONUA JANAH
Mercury News Staff Writer
Online software vendor Beyond.com is struggling with major
management and staff defections, mounting financial losses and a
flagging stock price as it attempts to reposition itself as a distributor of
software to businesses rather than consumers.
The Sunnyvale company's stock has dropped 22 percent since
Wednesday, when the company disclosed that profit margins were
falling and that Chief Financial Officer Michael Praisner had resigned.
But the company's problems run much deeper.
Beyond.com's Web site was shut down for more than 33 hours over
three days late last week. Beyond.com said it took the site down
deliberately to prepare for anticipated heavy traffic. But financial
analysts said the shutdown -- the site's first ever major outage -- is a
bad sign coming before the holiday shopping season.
Over the last month, a number of key executives have also quit the
company, which sells software ranging from games to complex
business packages over the Web and through other channels.
Chief Operating Officer William Headapohl has left the company to
act as an adviser to start-up companies, although Beyond.com has
made no official announcement about his departure. Headapohl was
co-founder of BuyDirect, another online software seller that
Beyond.com bought in February for $133.7 million in stock.
BuyDirect's other co-founder, Bong Suh, also left this month, as did
Beyond.com's vice president of marketing, Brian Sroub, and several
customer service managers.
Sources familiar with the company said that there is dissension within
Beyond.com about the company's attempt to reposition itself as a
``business-to-business' company since the BuyDirect acquisition.
The sources said the shift is mostly an attempt to pander to Wall
Street's obsession with the latest hot trend, business-to-business
e-commerce, rather than a reasoned strategy that makes sense for
Beyond.com.
Though Beyond.com's revenues have been growing steadily, so have
its expenses. As a result, losses are ballooning. For its fiscal third
quarter ended Sept. 30, revenues almost quadrupled to $36.6 million
from $9.7 million in the year-ago period. But net losses rose even
faster, going from $8.9 million to $37.8 million.
Earlier this year, the company made headlines with a television ad
campaign that featured a naked man ordering software from home. In
addition, Mark Breier, president and chief executive officer, appeared
in a TV interview clad in nothing but boxer shorts.
Sroub, now chief executive officer of chipshot.com, which sells
custom-made golf equipment over the Web, said Monday that he
wanted to pursue ``a great opportunity' at Chipshot.
But before he left, Sroub sent a farewell e-mail around the company
suggesting his departure came over a dispute in company strategy.
``With all the fighting on the (executive) team, some one had to go,
and I guess the criteria used in that little lifeboat exercise was to push
out the guy who could find a better job quickly,' said the e-mail, a
copy of which was sent to the Mercury News.
Sroub declined to comment on the e-mail. Bong Suh did not return a
call Monday seeking comment.
Breier said that despite the departures from the company, ``we've
experienced net management growth' at Beyond.com. Breier cited the
hiring of a new vice president of marketing as well four additional vice
presidents.
Beyond.com -- along with competitors like Onsale and Cyberian
Outpost that sell software, hardware and electronic equipment
primarily over the Web -- is facing greater competition and tighter
profit margins.
``I like the fact that Beyond.com has a multichannel strategy,' said
David Trossman, an analyst at First Union Securities. ``They use the
Web, but they also have a direct sales force for selling to the
government. But they've been spending too much to win the software
game. Their relationships with portal companies have been very
expensive, and so has their TV ad campaign.'
Beyond.com's stock, priced at $9 a share during its initial public
offering last year, closed Monday at $8.94 a share, down $1.19.
That's far below the company's 52-week high of more than $41,
reached in January.
In attempt to revive the interest of Wall Street, Beyond.com is
marketing itself as a business-to-business e-commerce company.
Sellers of business-to-business software are currently hot commodities
in Silicon Valley because of the enormous potential buying power of
large corporations. Ironically, one of these companies is CyberSource
Corp., the company from which Beyond.com -- then named
Software.net -- was split in early 1994.
Bill McKiernan, chairman and chief executive of CyberSource, which
sells e-commerce transaction software for businesses, is also chairman
of Beyond.com, and owns about 8.4 million shares.
Breier said that, counting sales to government and the online stores
that Beyond.com runs for software publishers such as Symantec and
Network Associates, more than two-thirds of the company's revenue
is already business-to-business sales. In addition, the company
recently started testing a program to allow small and mid-sized
companies to buy software over the Net by subscribing to an
automated service.
Going forward, he said, the company is in a strong position because it
leads the market for sales of software directly downloaded from the
Web. Most analysts believe that these downloads could account for a
significant share of business software sales in the future.
Breier said that Beyond.com is also attempting to rein in costs by
cutting back on its promotional expenses now that it has built a brand
identity and 1.8 million customer accounts.
He declined comment on whether the company is in merger or
acquisition talks.
But Trossman, the First Union analyst, said the company may be
bought if its share price declines even further, making it a cheaper
purchase. More likely, he said, is ``a strategic infusion of capital' from
a company interested in gaining access to Beyond.com's government
and small-business customers. |
