<They must accelerate (subscriber ramp) or the stock will take a royal tumble>. I couldn't agree more. Not only do they need to accelerate subscriber ramp, but they also need to slow the revenue concessions.
The Table 1 below shows sequential subscriber growth and sequential revenue growth for the periods since they have been public. In all but one quarter, the quarterly sequential growth in subscribers exceeded the sequential growth in revenue. I think that means either they are discounting to ramp subscribers or TCI/AT&T is taking a bigger percentage. Either way that isn't good news.
----------------------TABLE 1
--------------------Sequential-----------------Sequential
Quarter-------------Subscriber------Revenue-----Revenue
-Ended---Subscribers--Growth %-----(Thousands)--Growth %
6/30/97------7,000--------NA---------1,024----------NA
9/30/97-----26,000-----271.4%--------1,907--------86.2%
12/31/97----50,000------92.3%--------3,700--------94.0%
3/31/98-----90,000------80.0%--------5,773--------56.0%
6/30/98----147,000------63.3%--------9,200--------59.4%
9/30/98----210,000------42.9%-------13,815--------50.2%
12/31/98---331,000------57.6%-------19,257--------39.4%
3/31/99----460,000------39.0%-------25,098--------30.3%
Based on the April 13, 1999 Press release by PR NEWSWIRE announcing the company's first quarter results, ATHM had 120,483,000 shares outstanding. Based on Friday's closing price of $157/sh, it has a market capitalization of about $18.9 billion. From the table above, the four-quarter trailing revenues are $67,370,000. Dividing the market capitalization by the most recent annual trailing revenues gives a price to sales ratio of 281 times.
To get a reality check, I also looked back on Cisco's revenue ramp since its IPO together with high and low price to sales ratios for each of the quarters ended March 31. Please note that I may have made mistakes in both these tables so before you rely on what I say, you might want to independently confirm these numbers.
---------------------TABLE 2
-----------------------CISCO SYSTEMS
---------Qtr. Sales-Sequental-Low Trailing-High Trailing
Date------Millions---Growth--- Price/sales--Price/sales
Sep-88-------1.4-------na
Dec-88-------4.1----192.9%
Mar-89-------5.6-----36.6%
Jun-89-------7.7-----37.5%
Sep-89------10.3-----33.8%
Dec-89------14.1-----36.9%
Mar-90------16.1-----14.2%---------6.5---------7.6
--Trailing Ave.------30.6%
Jun-90------17.9-----11.2%
Sep-90------21.8-----21.8%
Dec-90------32.8-----50.5%
Mar-91------44.0-----34.1%---------4.7---------7.0
--Trailing Ave.------29.4%
Jun-91------49.7-----13.0%
Sep-91------56.8-----14.3%
Dec-91------63.6-----12.0%
Mar-92------74.0-----16.4%---------7.6---------10.5
--Trailing Ave.------13.9%
Jun-92------91.4-----23.5%
Sep-92-----110.7-----21.1%
Dec-92-----126.4-----14.2%
Mar-93-----145.1-----14.8%---------9.6---------12.2
--Trailing Ave.------18.4%
Jun-93-----172.4-----18.8%
Sep-93-----205.2-----19.0%
Dec-93-----248.5-----21.1%
Mar-94-----302.2-----21.6%---------4.3----------5.3
--Trailing Ave.------20.1%
Jun-94-----331.2------9.6%
Sep-94-----361.2------9.1%
Dec-94-----392.9------8.8%
Mar-95-----454.9-----15.8%---------5.4----------6.8
--Trailing Ave.------10.8%
Jun-95-----509.9-----12.1%
Sep-95-----621.2-----21.8%
Dec-95-----710.2-----14.3%
Mar-96-----826.5-----16.4%---------6.6---------10.4
--Trailing Ave.------16.2%
Jun-96---1,087.1-----31.5%
Sep-96---1,292.2-----18.9%
Dec-96---1,434.8-----11.0%
Mar-97---1,592.4-----11.0%---------5.6----------8.5
--Trailing Ave.------18.1%
Jun-97---1,647.9------3.5%
Sep-97---1,765.1------7.1%
Dec-97---1,868.7------5.9%
Mar-98---2,016.3------7.9%---------7.3----------9.8
--Trailing Ave.-------6.1%
Jun-98---2,183.8------8.3%
Sep-98---2,390.0------9.4%
Dec-98---2,588.0------8.3%
Mar-99---2,827.0------9.2%--------14.2---------18.7
---------------AVERAGE-------------7.2----------9.7
So based on Table 2, the market is currently valuing one dollar of ATHM's trailing sales at about 12 to 13 times the highest it ever valued one dollar of CSCO's sales. Go figure.
But I will be the first to admit that trying to apply valuation measures on ATHM has been a loser's game and those who have ignored this kind of thinking have ended up being huge winners.
So, what really worries me about the stock is that there are indications that the smart money is gone. A week ago last Friday, Roger McNamee was a panelist on Wall Street Week. Roger works for an arm of Kleiner Perkins, the venture capital firm that venture funded ATHM and most of the other recent highly successful Internet IPO's, including Amazon. Scroll to the bottom of this link for Roger's picture. kpcb.com
Roger said on the show that it's going to get pretty ugly for the Internet stocks. www3.techstocks.com Normally, venture firms distribute shares of stock to their institutional investors sometime after the IPO. I don't believe McNamee would have make that comment if Kleiner Perkins' clients haven't sold most of their Internet positions. If that's right, the smart money is gone from ATHM and the rest of the Internet stocks and the speculators are the only remaining support for these stocks.
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