K-Tel Stock Drops 32 Pct. Tuesday
.c The Associated Press
By ERIC R. QUINONES
NEW YORK (AP) -- K-Tel International, the company that refused to let K.C. and
the Sunshine Band and the Bee Gees go away, became chic on Wall Street this
year simply by announcing it would pitch its compilation albums and other
wares on the Internet.
But K-Tel fell off the Internet-stock wave Tuesday, as its shares plunged 32
percent after the Nasdaq Stock Market told the money-losing record seller that
it lacks the required assets to remain listed.
K-Tel stock will continue trading as the company appeals for an extension from
Nasdaq and tries to raise more capital to satisfy listing requirements, a
process that could take several weeks.
But Nasdaq's warning offered a poignant reminder that the Internet is not yet
a profitable business for most companies, despite the waves of frenzied buying
in response to seemingly any online-related announcement.
''Stocks have immediately moved up based just on the idea and everybody
wanting to be involved -- at some point they look at value. Perhaps with K-Tel
it's the first good look at what the reality might be,'' said A.C. Moore,
chief investment strategist for Dunvegan Associates in Santa Barbara, Calif.
K-Tel shares fell $5.62 1/2 to $12 in heavy trading after the company
announced the Nasdaq warning in a regulatory filing. Following its recent
pattern of huge swings, the stock ranged from $11.62 1/2 to $21.25 on Tuesday.
K-Tel said in its filing with the Securities and Exchange Commission that if
it is removed from trading on Nasdaq's main exchange, it will move to a less
prominent market run by Nasdaq for smaller companies.
Nasdaq requires listed companies to have net assets of $4 million. K-Tel,
based in Calabasas, Calif., has net assets of about $1 million, according to
its filing.
K-Tel lost $3.1 million in its fiscal first quarter that ended Sept. 30,
reversing profits of $1.2 million a year ago, as sales dropped 25 percent to
$18.8 million.
In its last full fiscal year, K-Tel lost $2.4 million, compared to profits of
$3.2 million a year earlier, although sales did rise 13 percent to $85.6
million.
Despite its losses, however, the company famed for hawking repackaged musical
hits on TV has been an on-again, off-again Wall Street darling based on its
name recognition and Internet optimism.
The first wave of K-Tel frenzy came in April and May, when its stock jumped
from about $4 to $40 after the company said it would begin selling its
products online and then acquired the Internet publishing rights to Billboard
magazine's weekly music and video best-seller charts.
After dropping to $5.62 1/2 by Oct. 9, K-Tel shares leaped again this month
after the company agreed to create a store on Playboy's Web site and to
feature its K-Tel Express site on the Microsoft Network. The stock was as high
as $39.12 1/2 on Nov. 11.
K-Tel has not been alone in the dizzying love-hate relationship investors have
formed with the Internet. Stocks of established online companies including
America Online, Netscape and Yahoo have seesawed as lesser-known players such
as Market Guide and Track Data became just brief shining stars.
And the mood shows no signs of changing. In just the past week, stock in AvTel
Communications soared from $2.37 1/2 to $31 after the company announced it
would launch of a high-speed Internet connection in California. But the shares
tanked after AvTel said it was not planning a nationwide launch of the
service, closing Tuesday at $7.87 1/2, down $2.62 1/2, or 25 percent, on
Nasdaq.
Moore of Dunvegan Associates said the wild ride of Internet stocks currently
makes them impossible to value.
''I'm not suggesting there's nothing to them. It's a gigantic change in this
time where we're all going to be viewing things and buying things
differently,'' he said. ''But, at the same time, there are a lot of
interlopers and there are a lot of pretenders that are on the coattails of
this great Internet change.''
AP-NY-11-17-98 1754EST |
