I have a thought or two about the earnings report. First, I found it somewhat disappointing. I would like to have seen at least 1 million net wireless subscriber adds for the quarter, but I also know that subscriber adds are correlated with the seasonality of the mobile phone industry, which troughs in the third quarter. The fourth quarter has always been the strongest. Nokia predicts that the number of wireless handsets they will sell during 4Q will be 20% higher than in 3Q. Basically, more than 97% of the current wireless subscriber base has phones that are not equipped to handle data transmissions. As these people replace their current handsets the number of wireless internet users will grow proportionately. This upgrade cycle will move into much higher gear this holiday season and into next year because Nokia, the wireless handset industry leader, has begun replacing its current line-up of mobile phones with phones that are data enabled. And then during the third quarter of next year 3G they will introduce 3G phones with data transmission rates approaching 400 kbps. Incidently, a commercial 3G network is currently operating in Japan in a few of their largest cities by NTT DoCoMo.
On the other hand, Infospace's Q does show solid if unspectacular progress. Wireless subscriber adds did increase 25% from 2Q and Authorize.Net's transaction volume increased approximately 18% from 2Q. These quarterly incremental revenue gains are quite solid and should be respected even though many of us were hoping for an absolutely stunning quarter.
As howsmydrivingal pointed out, management's forward revenue guidance makes little sense. Management stated, if my memory is correct, that recurring revenues for 3Q were $26 million and advises to expect that 4Q revenues will be around $27 million--just $1 million more. I believe that they have been chastened over the past year by criticism about the optimism they professed during the height of the economic bubble during 1999 and 2000, and have absolutely done the right thing in keeping expectations low so as not to disappoint anyone. However, I question how realistic it is to project that recurring revenue will grow by only $1 million. In order to achieve that goal, Authorize.Net would only have to process $100 million more in transaction volume, which should be a piece of cake because their business is highly seasonal and 4Q is far and away their biggest quarter with holiday shopping and all. I believe that Authorize.Net's transaction volume in 4Q2000 exceed 3Q2000 by more than 30%. Essentially I believe that Authorize.Net's business growth alone will allow Infospace to meet and exceed it goal for recurring revenues in 4Q. And that analysis doesn't even take into account what growth will accrue in the wireless subscriber business. I believe that management has lowered the expectation bar so low that it may be unrealistic, though the definition of "unrealistic" in this context is always arguable. Time will tell.
I think the 200 headcount reduction is a probably far more positive than negative. It's not like they're reducing their workforce in half or anything. I consider it to be fine tuning and probably most appropriate. The $5 million saving in operating expenses will actually matter in Infospace's bottom line, especially when it become profitably next year.
When I think about it, I see that Infospace's results and forward looking guidance is not significantly different than it was last quarter. Profitability then and now was targeted for 3Q2001. (I think it will happen sooner but better to be conservative and leave a generous margin for error than otherwise, neh?)
Best Wishes to Everyone,
Puck |
