Carl: NETP missed the first bubble top
NETP was not even a public company during the development of the bubble. You refer to it as the "first" bubble top, but elsewhere in your post you imply that, normally, that first top would have been the end of the bubble. In fact, all the dynamics of both tops were done before that first top and NETP never particpated in that.
It was unusual in that it re-inflated and formed yet another bubble top in March of this year.
This presupposes that it was the same phenomenon. This might be a case of you doctoring the data to fit your assumptions. Who is to say that a "third" bubble top could not form - ad infinitum? My original post did not posit another "bubble" it called for NETP's true peers - not dot-
coms - gaining back the bulk of their previous valuations. I admit the word "bulk" is vague - but what I meant was that they will recover a substantial portion of their valuations and if they do NETP will then be in danger of acquisition from them unless, it, too, can do the same. Either way, through recovery of some of its former valuation or through being taken over NETP will increase in value.
NETP ......but fully participated in the second bubble..
NETP did not fully participate in the second bubble. It lagged its true peers by more than one quarter and never reached the levels of their valuations. At its height it was between one eigth and one half their valuations. In fact NETP is so a-typical of your "typical" internut that the generalisations you draw from the DOT index are not particularly useful.
....and even did a very nice job of issuing a secondary during the bubble.
As for the "nice job" on the SPO. If NETP was aware of the imminent crash in valuations, as your remarks seem to imply, why did the CEO and one other officer withdraw half their shares from sale because the price being offered was too low?
Why did they leave the SPO until literally the eleventh hour before the crash?
Why did they fail to get higher than $45 for the new shares and $42.25 for the insider shares given that the stock had been above $45, and often in the $50's, for the best part of three months previously? It was at $51 when they announced the SPO.
If they knew it was just a bubble why didn't they raise more cash while the going was good?
I think there was a lot of luck in the SPO and it was not such a nice job.
I also question your assumption that the SPO was to ensure solvency until NETP reached profitability. This was not the stated purpose of the SPO. It was to raise cash for acquisition of technology or other companies and to help prevent a takeover and other reasons. NETP had enough cash to get to profitability without an SPO. After the fact, it is useful to have the money. But those who assume that the market needed the comfort of a large cash hoard in order to be able to sustain NETP valuations have been proven horribly wrong. NETP value has dropped by over 60% since it got the cash. The shares issued to get the cash have diluted the other shares by about 13%. The SPO caused NETP to break through the long-term support level of $43 and it was in a very weakened technical state when the crash hit. This may be one of the reason NETP fell quicker and further than its peers. Until the cash is used to buy some productive working asset it's net effect has been a burden on NETP. Meanwhile NETP will achieve profitability in 1Q 2001 or 2Q well within the original cash resources it had before the SPO. And even if it had been in cash difficulty why would you suppose it could not raise cash in the Fall or next year? Do you believe that the market, banks and other funding institutions are not sophisticated enough to be able to read the NETP balance sheet and make reasoned judgements about the viability of its business model because they are overwhelmed by the conventional wisdom of message boards and CNBC squawk box?
Once again I think you may be squeezing the facts to fit your assumptions.
In my opinion, the main reason for the cash was to mix it with shares to make acquisitions. That is part of the reason it doubled the number of authorised shares to 100 million. NETP had no idea that the value of its shares would fall so drastically. And this takes me back to my main thesis that the NETP management underestimated the short-term effects of the market on its business strategy. It might have paid a lot more attention to PR if it had not.
Of course before the stock can recover it will have to become clear that the inevitable failure of the "cash sucking" etailers will not compromise NETP's future. That question mark is the reason for the recent fall.
I think this statement is a good illustration of how working with aggregate statistics can lead to amorphous generalisations. NETP recognised early in 4Q 1999 that it ought to make clear that it relied for about 25% of its revenues from dot-coms and that its new focus from the Fall of 1999 was multi-channel retailers with a minimum average selling price which was then over $130,000 but has since risen to $340,000. So NETP has been beating the drum of its diversification since at least October 1999. I think it is clear from analysts coverage that they are not in any doubt about the range of NETPs' products or the main sources of its revenues. Furthemore, since 4Q institutional ownership has risen from about 6% to the high 30%. From about 20 institutions holding it has risen to 77, by one count, or 124, by another! There is no evidence whatsoever to support your contention that linkage with e-tailers is the main cause of its decline. You appear to have treated a statistical correlation as evidence of fact.
I do not actually, accept your premise that all e-tailers will inevitably fail because of lack of cash. In the first place, not all e-tailers will fail, most of them will survive alone or through merger and acquisition activity, some will survive by diversifying or tweaking their business model. Those that do simply go out of business will not fail because of lack of cash - the lack of cash is a symptom not a cause. They will fail because of fundamentally unsound business models and poor management. They were based on the asssmption that any number of retailers selling the same goods to the same consumers was viable, when it is not. So far, none of NETP's customers are in that category. And even if they were, their failure would be no cash loss to NETP.
The issue of whether NETP is caught up in the temporary market assumption that the decline in the value of e-tailers must also affect their supplies is fair speculation. But it is speculation.
My reply to that is that despite the fact that 77 or 124 institutions have bought more than 30% of NETP's shares, and despite the fact that 8 analysts recommend it as a BUY, STRONG BUY or HOLD with less than 12 month targets of $65-100, the fact is that not enough analysts and not enough institutions and not enough retail investors have been made aware of NETP's virtues including its partial relationship with dot.coms. PR has been deficient. NETP claims to be adressing this problem seriously. I believe them. NETP has been told by institutions that they like the NETP story but that serious buying must await general market dynamics which were expected to prodcue a bottom in the summer and a rise in the Fall. I concede that among uninformed retail investors and those that play moods (of whom we have our fair share on these boards) there may be a general disenchantment with any stocks connected to the internet economy - but not just e-tailers. In the general disenchantment NETP is punished more than most, not because of any alleged link to e-tailers, but because it is simply not known. Its prodcut is hard to understand, its business model had never been fully explained, and its management is not known. In the micro-marekt of the last three weeks, it has also been buffetted by news of a VC selling off. That is why PR is so important. Absent effective PR - directly or through the recruitment of new analsyts - then NETP will have to rely on its performance winning the day, or, waiting the general tide which will lift all tech stocks in the Fall and 1Q lifting NETP, too.
I still believe, as I have believed since April 1999, that NETP is more likely to be bought out than not. In other posts I have argued for a price of $50+ dependent on stated factors. If the buy out is before October, I concede the price might be in the $35-45 range. |
