SPECIAL SITUATIONS:
Glowpoint, Inc. (NASDAQ: GLOW) $1.70
Emerging technologies that had been all but given up for dead have suddenly become “hot” among the Wall Street crowd. Two weeks ago, small Voice over IP stocks that had long ago been forgotten by investors soared, as favorable media exposure highlighted the opportunities in the space. Some of the companies in the sector, such as Eight by Eight and Vodavi Tech surged, with Eight by Eight more than doubling in just one week. We believe that investors may soon begin to focus on a related area, IP-based video communications services. Glowpoint, Inc. the nation’s first and leading enterprise-grade, IP-based video communications service provider, could benefit.
Based in New Jersey, the company provides complete end-to-end video solutions for videoconferencing, bridging services and webcasting. The company was founded in 2000 as a division of Wire One Technologies and was spun off into a publicly traded entity in September of this year. Since its launch, Glowpoint’s network has carried over 12.5 million video minutes over its network, for many of the country’s leading companies. While video conferencing received much publicity after September 11 as travel fears grew, it is only recently that it has begun to see growing adoption among Corporate America. Shares of Polycom (NASDAQ: PLCM), one of the leading makers of video conferencing equipment, established a new 52-week high last week amid expectations of growing equipment sales. GLOW is a major beneficiary of increasing equipment sales, as it means that there will be more users for its solutions.
The company is already seeing some of these trends. GLOW has experienced quarter over quarter growth in call initiated usage minutes since early 2001, as usage has increased from just 16,000 minutes to over 1.1 million minutes last quarter. Likewise, its subscription based revenue has grown from nominal revenues in Q1 2001 to $1.5 million last quarter. The Glowpoint network carries over 8,000 video calls per month throughout the U.S. and globally. Nearly 300 companies, government agencies and other organizations subscribe to its videoconferencing solution. The company has provided high-profile events such as the NBA and NFL drafts with its video feeds.
The company has gone through a major transformation, which has positioned it for growth. In September, it divested itself of its equipment division, which had generated significant losses, to allow it to solely provide video communications services…which it does very well. The company’s services have been recognized by Frost & Sullivan and Network World, and have been able to complete 99.9% of its calls, the highest service level by far. Leading equipment manufacturers like Polycom, Tandberg, Sony and Radvision, look to Glowpoint as the industry leader to provide technical feedback and certification for their products. The company also brought in a new CEO, who had success in quickly building distribution for StarBand Communications, the first consumer and small business high-speed, two-way satellite Internet provider. An effective distribution network should be a catalyst for the company to generate significant revenue growth.
The company markets its services under SchedulepointTM, its web-based scheduling package that enables customers to schedule point-to-point and multipoint calls in an unassisted fashion. Customers do not have to worry about first-mile and last-mile connectivity. Its services support SDSL, HDSL, Frac T1, DS3, Sonet, ATM and Gigabit Ethernet options, allowing for the broadest customer base possible. By contrast, traditional ISDN videoconferencing is hard to use, unreliable and expensive. Recently, the company introduced its Unlimited subscription plans, which allow for unlimited video calling on the Glowpoint network for as low as $499 per month. The company’s feature-rich solutions have also helped differentiate it from other providers.
The company has a nominal valuation, despite a strong customer base and growing subscription revenues. In fact, Wire One raised approximately $60 million to date to fund its business model, yet today Glowpoint still trades at a relatively nominal valuation. The stock, which spiked as high as $3.50 in September on the news that the company was selling its hardware business, has pulled back to current levels, leaving it down approximately 38% for the year. However, with shares of Polycom establishing a new high and communications equipment company Radvision’s shares nearly doubling this year, it appears to only be a matter of time before an increase in equipment users translates into revenue growth for service providers. Investors who “see” the opportunity early could reap the largest rewards. |
