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Technology Stocks : Net Perceptions, Inc. (NETP) -- Ignore unavailable to you. Want to Upgrade?

To: bernieb2 who wrote (2603)	7/30/2000 9:49:02 AM
From: Carl R.	Read Replies (2) \| Respond to of 2908

Let's get one thing straight, the number actually reported to the SEC is -$.46, not either -$.15 or -$.12. The "pro forma" numbers are for our amusement and for the analysts, not for the SEC. Analysts are willing to overlook the amortization of intangibles and stock based compensation. The intangibles are largely fictitious in any case. KD1 was purchased with stock valued at $52.64 a share. Thus what happens is that $117 million went into paid in capital, and the offsetting amount (other than hard assets) went into intangibles. From there the intangibles get amortized off from the assets and from the equity. In the end you have the shares issued left on one side, and the hard assets on the other. Just as a comparison, if the identical transaction took place today with NETP stock at $11.25, the amount paid for KD1 would be $25.2 million instead of $117.8 million. The amortization would be about $1.55 million a quarter instead of $7.25 million. The reported earnings would be $-.18 instead of -$.46. But the number of shares outstanding would be the same, and NETP would still own KD1. Even the tangible book value would be the same. Thus the intangibles are properly ignored because they are dependent on the stock price at the time of the acquisition. On the other hand you must also back the intangibles out when computing book value for the same reason. Ergo the real book value is $4.81 a share, not the $8.97 you would get if you include the intangibles. As for the lease, it is a bone fide operating expense. It is true that it is non-recurring, but it is a real loss. Suppose they just continued to expense the lease every month? It would certainly flow through earnings, wouldn't it? Companies are always trying to play games, rolling up expenses into a one-time writeoff so that future quarters will look better. In its extreme, this is called the "big bath", where companies try to write off everything in sight so that the next several quarters are assured of profitability. Analysts are wise to these games, however, and each time they see one they make a decision as to how they want to treat them. I think it is good that NETP just wrote off the remainder of the lease expense, but it is still an operating expense, and should properly be included. Thus in my opinion the correct number for this quarter is -$.15. On the other hand, when forecasting next quarter you would work off the -$.12 and measure any improvement from there. LOL I am confused about one thing though. If you look at the end of the quarter balance sheet, they have $47.431 million in cash, and $34.778 million in short term investments, presumably money market funds, etc. They also hold $33.329 million in "marketable securities". These are listed under long term assets, not current assets, so they clearly aren't cash, or cash like. On the other hand in their 10Q they say that they don't have any risky investments, so can I presume these are intermediate term bonds, as in 1 year or so? Carl

To: bernieb2 who wrote (2603)	7/30/2000 2:21:39 PM
From: rupert1	Read Replies (1) \| Respond to of 2908

bernie: 3Q results based on 2Q at -0.12 cents. You raised this issue. One month of 3Q has already passed, so the tone of the meeting with analysts on 17th August and the later road show (if done) should betray whether everything is on course. I was concerned that general softness in software sales would hold things up in any 3Q. So I checked back at last 3Q. In 1999, 3Q revenues were up 46% on 2Q and numbers of new customers was 25. I would be more than happy if this applied again. The average selling price was $100,000 then as opposed to $340,000 now. Then the customer list at 3Q was 138 as against 213 now. (But if we get 25 in 3Q we should be almost exactly 100 more than 3Q last year). So we have a larger scope for sales to existing customers. Then the number of products was about 4. Now it is 7 software products and 4 ASP products. Then sales staff was about half what it is now and consulting staff were much fewer. We had no up and running sales office in the UK and the Asian operation had not been formed. Then the market was smaller than it is now - and fewer bricks and mortar retailers were going online. If we start with -0.12 cents as the true figure for 2Q, then growth in revenues and improvements in cost-ratios should be better. If it was as easy as looking at the past and then projecting in a straight line, then we could say that results should be about -0.8 cents. This would set up a challenge to NETP to get to break-even or profit in the 4Q which ought to be high revenue quarter.