MCOM "sitting pretty atop a pot of gold"...
Indivual Investor Stock of the Day
Metricom: Linking up With a Couple of Hotshots
by Jade Liou 6/23/99
Shares of Metricom Inc., a leading provider of wireless digital mobile data communications systems, surged from last Thursday's price of $10.50 to a three-year high of $20.19 on June 22, before closing for the day at $18.
Why such interest in this stock?
Well, Metricom announced on Monday that MCI WorldCom and Vulcan Ventures, a venture capital vehicle owned by Microsoft co-founder Paul Allen, have together invested $600 million in the company through the purchase of 60 million new convertible preferred shares of Metricom stock at $10 per share. This agreement gives Vulcan Ventures 49% ownership and MCI WorldCom 38%. Existing shareholders (as of June 7) will own the remaining 13%.
With the media convergence and communications revolution well underway, traditional market leaders are looking to broaden their service base by acquiring or investing in smaller, more agile companies. An obvious example is MCI WorldCom, a telecom company in desperate need of a wireless service to compete with market heavies AT&T and Sprint. MCI had recently been pacing around the wireless pool, looking for the right partner to help it take the plunge.
Metricom will use the funds for the national expansion of its cutting-edge Ricochet service, which provides users of portable and desktop computers with wide-ranging, extremely fast wireless access to e-mail and the Internet. Because the Ricochet network does not use phone lines, the service bypasses such common problems as busy signals and expensive connection time.
As a result, Ricochet is more reliable and more affordable. For a flat monthly fee, users gain unlimited access to the Internet anytime, from almost anywhere.
At present Ricochet is available in select metropolitan areas at speeds up to 28.8 kbps. By mid-2000 Metricom plans to offer a much speedier 128 kbps Ricochet in 12 more major cities, including New York, Chicago and Los Angeles. By mid-2001 Metricom hopes to have added nearly 50 metropolitan areas to its Ricochet coverage.
With the MCI WorldCom agreement, Metricom will have access to MCI's extensive high-speed data and Internet network. MCI will also become a major distribution channel of the Ricochet service, as agreed under a non-exclusive five-year contract valued at roughly $350 million.
It all bodes well for Metricom, which is sitting pretty atop a pot of gold.
With e-business taking off, corporations are seeking a highly mobile, cost-effective communications solution. Consequently, demand for wireless communications is exploding.
Metricom's revenue rose 18% in 1998, from $13.4 million to nearly $16 million. Revenue grew another 16% in the first quarter of 1999, to $4.2 million.
In addition, subscriptions to the Ricochet service grew 37% in 1998, from 19,000 to 26,000. By April of ‘9 Metricom had added another 3,000 subscriptions, bringing the total number of Ricochet users to nearly 30,000.
Among major subscribers are IBM, Xerox and the Los Angeles Police Department.
Undoubtedly, other professionals are also looking to tap the convenience, speed and affordability of the Ricochet network. In an interview, CEO Timothy Dreisbach underlined the enormous growth potential of the wireless market by stating that “we see the confluence of people who are mobile and need access to data.”
Metricom targets “road warriors,” those professionals who are frequent business travelers but who must still keep in constant contact with both clients and the home office while on the road. A recent International Data Corporation (IDC) study forecasts that over 7 million of these road warriors will be doing business in areas to be covered by Ricochet in 2001, and that the number should swell to over 13 million by 2005.
Moreover, the IDC expects 1999-2000 to be critical years for the U.S. Internet services industry, with revenue growing at 60% each year, to top $78 billion by 2003.
Translation: Metricom's revenue should explode.
But, alas it is still in the red. In fact, in the first quarter of 1999 its losses swelled to $15 million, or $0.80 per share, from a net loss of $11.7 million, or $.69 per share for the same period last year.
Bottom Line: Although it still hasn't turned a profit, with deep pockets now backing it Metricom is no longer another small company with good technology, a dream and not enough capital.
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Best wishes,
Tom |
