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Technology Stocks : HOMS Homestore.com -- Ignore unavailable to you. Want to Upgrade?

To: jlib who wrote (60)	1/26/2001 2:44:05 AM
From: peter michaelson	Read Replies (1) \| Respond to of 505

HOMS announced its 4th Quarter earnings today. A Pro Forma positive net income of $3.3 million, or 4 cents per share. GAAP loss of $34 million. For the Pro Forma, HOMS added back $11 million of goodwill amortization and $22 million of stock-based charges. I think adding back goodwill is fair enough. But the stock based charges consist mainly of payments made to AOL for advertising. In April, HOMS paid AOL $300 million, 95% in stock with a guaranteed price floor, for five years of plastering their name all over AOL's web pages. (details below) HOMS likes to call this 'a distribution agreement', but it is advertising - getting their name in front of millions of eyes. So they have neatly eliminated the lions' share of their huge marketing budget from Pro Forma presentation. The problems go deeper. In the latest quarter, stock based charges doubled from about $11 million to about $22 million. Maybe HOMS has accelerated their usage under the AOL agreement, in light of their very disappointing web site activity, as stated in today's PR. Imagine spending that much money on marketing and seeing no growth where fundamentally, growth is most important - end customers. Here are the critical excerpts "The average monthly number of unique users visiting the Homestore.com network rose to approximately 4.3 million, .............. up 3% from the third quarter of 2000(1). Each unique user spent an average of 19.7 minutes per month on the network ........ down 16% from the third quarter of 2000.(1) Page views were 605 million for the quarter, ......... down 13% from the third quarter of 2000." Peter AOL details from one of the 10Q's..."In April 2000, the Company entered into a five-year marketing and distribution agreement with America Online, Inc. ("AOL"). In exchange for entering into this agreement, the Company paid AOL $20.0 million in cash and issued approximately 3.9 million shares of its common stock. The Comany has guaranteed that the 30-day average closing price, related to 60%, 20% and 20%of the shares it issued, will be $68.50 per share on the third, fourth and fifth anniversaries of the agreement, respectively. This guarantee only applies to shares that continue to be held by AOL at the end of each respective year. At June 30, 2000, the Company recorded $185.9 million in other non-current liabilities, which represents the fair market value of the 3.9 million shares of the Company's stock issued upon entering into the agreement plus the fair market value of the $68.50 per share guarantee of the stock. The difference between the total guaranteed amount and the liability recorded will be recorded as other expense over the term of the agreement. In connection with the guarantee, the Company has established a $90.0 million letter of credit which has been classified as restricted cash on the balance sheet. The letter of credit can be drawn upon by AOL in the event that the 30- day avearage closing price is less than $68.50 at the end of each respective guarantee date. The letter of credit will be reduced to $50.0 million at the end of the third nniversary of the agreement. The term of the agreement may be reduced if AOL draws more than $40.0 million from the letter of credit at the end of the third year anniversary of the agreement."