Unclear Road To Profits Sends Zi Corp To
52-Wk Low
By PAUL HAAVARDSRUD
Of DOW JONES NEWSWIRES
TORONTO -- The bear has been peeking in a lot of picnic baskets lately
looking for signs of profitability. As Zi Corp. (ZICA) is discovering, the bear
can be pretty hungry if it isn't satisfied with what it sees.
In the current market, many investors are opting to shy away from companies
without a "clear visibility towards profitability," explained Brian Pow, senior
technology analyst at Acumen Capital Finance Partners.
"From Zi's perspective, they've got a very aggressive growth plan and they've
got four or five interesting opportunities, but their pathway to profitability is
certainly not quite yet apparent," Pow said.
On Nasdaq Tuesday, Zi Corp. is down 9/16, or 13%, to 3 5/8 on about
220,000 shares. The stock has traded as low as 3 1/8 Tuesday, and its
previous 52-week low was 4 3/32.
Zi Corp., which traded as high as 40 7/8 during the spring technology run-up,
is off 1 7/32 in the last three trading sessions.
Company Web Site: zicorp.com
Zi Corp. (ZICA), which has interface technology catering to many large, but
relatively untapped markets, such as China, has long intrigued investors with
its potential. However, current market sentiment values clear results over
potential, and the company's share price is suffering.
"Zi Corp. has an interesting business model, but it is high impact, meaning high
dollars," said Acumen Capital analyst Brian Pow. "They've extended their
reach to get the penetration they want, but it comes at a cost, which is a high
burn (rate)."
Zi Corp. had about C$51 million in cash at the end of its third quarter, said
Pow, which should be enough to fund operations for roughly the next 10
quarters, given its current burn rate of C$5 million to C$6 million a quarter.
Calgary-based Zi Corp.'s embedded language-enabling software allows
messages to be sent and received in up to 28 different languages.
Despite several "strong" initiatives, as well as licensing and partnership
agreements with large companies, such as Alcatel S.A. (ALA) and Ericsson
Communications, Zi Corp. must deal with certain challenges, Pow said.
"The risk in their business model is sort of out of their hands and dependent
on the ability of their partners to perform," said Pow, explaining that a
slower-than-expected rate of technology adoption in Zi Corp.'s target
markets, particularly in Europe, has hurt the company's royalty-based revenue
streams. "They have some impressive names and have tried to mitigate the
risk of any one partner not performing, but ultimately they are dependent on
all of those (partners and licensees) firing to really make their business go."
Pow said the company is making progress with some licensees, most notably
in Korea, but with lead times of up to a year before product delivery, new
agreements won't immediately translate into revenues.
Zi Corp. is only one of many companies to be bitten by the bear during the
recent downturn, Pow pointed out, noting that many companies whose
revenues don't match their lofty market capitalizations are being revalued. |
