Below is an article that appeared in TheStreet.com back in late April. I have a few comments about it in the following post.
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SAN FRANCISCO -- Fund managers filed into USWeb's (USWB:Nasdaq) presentation at the Hambrecht & Quist Technology Conference yesterday to hear how the company will go from a $58 million loss last year to the leader in the lucrative market of getting other companies to do their business on the Net.
Many left in a cranky mood. USWeb's stock, which lost 28% of its value in the four days after it posted first-quarter earnings, gave up another 8% Monday. Although the company's revenues rose 29% from the previous quarter, USWeb racked up a loss of $16.4 million.
USWeb's strategy has been shrewd, if risky: Grow quickly in a market that is is poised for explosive growth, but currently is so fragmented that it lacks anything close to a leader. But growth means hiring staff for offices all over the country and buying even more through acquisitions financed only by the company's rising equity.
It's a great story to tell investors already pumped about the Net's promise. And CEO Joe Firmage has told it many times, so many that his presentation at the H&Q conference was a study in the confidence that comes from rehearsal. Wearing a brown suit, gray turtleneck and a neatly trimmed beard, Firmage frequently clenched his fist and tightened his jaw as he told USWeb's story.
Sure we're buying like crazy, the spiel goes, but it's all paid for with equity and Wall Street analysts expect the company's non-cash loss to disappear by year's end. Indeed, excluding non-cash charges, USWeb's first-quarter loss was $3.3 million. All acquisitions go through a 310-step process that is "religiously" adhered to (Firmage declined to list those 310 steps).
So none of this should have come as a surprise to the hundreds of investors who came to hear Firmage. What got under their skin was not what they heard, but what they didn't hear -- something new, or at least some more details on how exactly USWeb is helping clients.
"I give them an A for presentation," said one fund manager who asked not to be named. "But I'm not sure I understand where it's going. I worry about the value of a stock like this that has a lot of proving to do."
Firmage did deliver a "case study" of its work for computer distributor Ingram Micro (IM:NYSE). As a result of USWeb's expertise, Ingram was able to leverage the Net to increase its margins and reduce its dependence on warehouses, he said.
Again, investors felt there wasn't enough in this example to show whether the company has what it takes to go up against the likes of IBM (IBM:NYSE) or even a consulting house like Andersen that is poised to invade USWeb's turf.
"I didn't hear any description of what it was they did for Ingram," said a second fund manager who shrugged at what Firmage offered. "They had a slick, nice-looking presentation here, but I didn't see much substance."
What will it take to sate investors' appetite for the data they need? Testimonials from clients that offer more than USWeb's view of how a given deal went would help. So would a better understanding of the methodology used to help businesses get on the Net and a clear indication of how the company is stronger -- not just faster-growing -- than the competitors it will increasingly face, investors said.
In the meantime, USWeb has two things that are unarguably in its favor: a growing market share in a market some say is on the verge of explosive growth and a front-row seat on the big trends just now influencing Internet commerce.
Firmage outlined some of these at his presentation: Companies are moving from intranets to public networks; outsourcing is catching fire as more companies get involved with the Internet; and e-commerce won't kill the middleman, just radically reshape his role.
Perhaps Firmage & Co. do have a good grip on how to help companies get wired. If so, investors are waiting to hear some of the details.
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