E, thanks for your response. You make a good point and no, I did not factor in an additional 5M users by mid-99. I am basing my estimates on analyst look-ahead projections, which are:
Estimated Quarterly EPS Fiscal Quarter EPS
Current (12/1998) $-0.06
Next (03/1999) $-0.05
Estimated Yearly EPS Fiscal Year EPS
Current (1998) $-0.35
Next (1999) $-0.08
The accounting adjustment has a negative $0.11 impact for each of the next 57 months, or about 15 quarters, according to my calculation. So analyst's estimates would have to be adjusted as follows:
Estimated Quarterly EPS Fiscal Quarter EPS
Current (12/1998) $-0.17 (-.06 -.11)
Next (03/1999) $-0.16 (-.05 -.11)
Estimated Yearly EPS Fiscal Year EPS
Current (1998) $-0.35 (a wash because 1Q and 2Q losses decrease)
Next (1999) $-0.52 (-.08 - 4*(.11))
So, instead of nearly breaking even in 1999 (-.08), they need to earn an additional .44 to reach that same near-break-even point. Will an additional 5M users do this? Maybe, assuming the analysts did not already include that in their estimates. I have no idea what their margins are, and the costs of wiring up an additional 5M users, so it is hard to tell. But we can back into that figure. They would have to earn, over two quarters, .22 per share *122M shares, or $27M to wash out the expense. With an additional 5M users, that works out to about $5.35 per user over six months, and if they charge, say, $40 per month, or $240 for six months, that is an additional margin of just a bit over two percent, which is small but not insignificant.
I suspect the overall impact is not as large as my calculations, since I doubt if the average investor is looking for profits as early as next year. BB for the masses is still several years away, IMO, and when that comes and assuming ATHM maintains its leading position, it will be fine. But I think as investors we need to work through this in order to avoid surprises.
And again, I am not an accountant, I am just cranking numbers. If there is some accounting principle that negates my calculations, I would like to know. |
