Entire article follows below (http://dailynews.yahoo.com/headlines/business/msnbc/story.html?s=n/msnbc/business/19980714/19980714201):
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Tuesday July 14 12:31 PM ET
Ad stock Leaps on bullish chat
By MSNBC's Barton Crockett
A normally low-profile stock lived up to its name Monday, as ad agency Leap Group (Nasdaq: LEAP) more than doubled in price to become the top gainer for all NASDAQ-listed stocks, MSNBC's Barton Crockett reports. Did the company's business suddenly boom? Not exactly. Instead, the stock appears to be the latest small issue whipsawed by Internet talk.
"Clearly, the [Yahoo] message board has been very active for us," said Fred Smith, chairman and CEO of the Chicago-based company, which trades under the Nasdaq ticker LEAP.
Indeed, nearly 500 messages were posted to the Leap thread on Yahoo's stock message boards Monday, including many by people who were extremely bullish on the stock.
One of the postings read: "Still half its IPO price and undervalued."
Another read: "I agree, this stock is worth $$$."
The bulletin board posts appeared to be the only significant source of market-moving news for the stock. Wall Street analysts don't cover it. Nor is the stock prominently held by institutional investors. Instead, Smith said, most of the investors appear to be retail investors.
The company issued a news statement Monday. But the announcement was relatively minor. Leap said it had entered into a joint-marketing pact with electronic commerce software-maker Broadvision Inc. But these companies have worked together before, collaborating, for instance, to construct a Web site for American Airlines. So the new marketing pact is not a major change from what had already been a working relationship. And Smith told MSNBC the Broadvision pact will not immediately affect earnings or revenues.
The lack of big news and active Internet talk left some skeptical about the sharp rise, and wondering if Leap has joined companies like Iomega and Comparator Systems in having wild stock gyrations fueled by fevered online stock talk.
"Be careful!! This is obviously artificial valuation. It will probably fall like a stone right back to ~$3.00," one Yahoo post said.
"It seems a little bit speculative to me," added Paul Cook, manager of the MunderNet Net Fund, a mutual fund that specializes in Internet stocks.
In any event, the big rise in the normally thinly-traded issue was remarkable. Leap rose 117 percent Monday to close at $7 per share.
More than 11.7 million shares changed hands. That's out of 13.6 million shares outstanding, of which more than 8 million are closely-held by four insiders, including 2.3 million held by himself, Smith said. Average daily trading volume over the past 13 weeks has been 433,000 shares.
Leap has had a recent history of volatility. More than 1.5 million shares changed hands on July 6 and July 7. That prompted the company to issue a statement, "that it believes the recent price and volume activity is the result of the combination of the company's profitability and the growth of the Internet advertising sector."
Both days the stock jumped nearly $2, before giving up a portion of its gains.
On April 13, Leap lept 60 percent to $7 and 7/8, before closing at $6 and 3/4, with 6.7 million shares changing hands.
Otherwise, for the past year, the stock has generally traded between $1 3/8 and $4 1/2.
Like the move on Monday, these earlier spurts were not accompanied by major news announcements. But Smith said he thought a sharp rise in the stock was justified by promising prospects. Leap, he said, is transitioning from a traditional ad agency - representing clients like Anheuser-Busch, Miller Brewing, and AT&T - to one that gets a large share of its income from Internet advertising. (Leap's online clients include MSNBC, for which the firm has designed banner ads.)
Smith said that when he took over as CEO in March, the company was getting more than 90 percent of its advertising from traditional services. In another six months, Smith predicted that interactive marketing services will comprise about half of Leap's revenues.
Leap broke even in the quarter ending in April on sales of $10.4 million, and reported a $100,000 profit on sales of $11.5 million for the quarter ending in January.
Smith said that means that Leap, with a market capitalization of $44 million at the close of trading Monday, should be valued closer to the $222 million valuation fetched by Think New Ideas, Inc. This ad agency received about half of its $11 million of revenues in the March quarter from interactive services. The company reported a profit of $700,000.
"The category is very hot," Smith explained.
But Leap also gets more than a third of its revenues from just one client - AT&T - which has also indicated, according to an SEC filing in June, that it is reducing marketing purchases through Leap.
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For what it's worth, I feel that the author of the article placed his own spin on the piece. I don't feel that the evidence Barton Crockett cited was a good fit for the overall article which was negative.
Additionally, I can't believe that Fred Smith, CEO, would find it beneficial to the company to state that the Yahoo! message board was responsible for the dramatic rise in share price, aka overvaluation, when he was quoted in an earlier press release stating that the rise was due to "the combination of the company's profitability and the growth of the Internet advertising sector." His quote was obviously taken out of context. |
