Ally - why $60+ full of optimism and now gloom and doom? Well, for one, the $60 happened during a bubble in the market. Now by contrast we have a popped bubble. The next $60+ came about because of buyout speculation. Now nobody talks about buyouts 'cause for one, there are not many telcos with a balance sheet healthy enough to buy GX - besides, GX has a lot of debt - if GX can not survive by itself paying interest from earnings generated, how would the acquirer do so after acquiring GX? And then some think: why not wait until the company goes BK that way you can pick up the assets for pennies on the dollar and not take on all that debt... which doesn't do GX shareholders any good. But then again like Casey said: nobody seems anxious to pick up the assets of all those bankrupted companies - so if they won't do it for pennies on the dollar, why would they acquire them for full price or even premium? Bottom line, a buyout here looks highly unlikely, and certainly not for any kind of premium. That's why when there was speculation of a buyout, you got prices like - $60+, now no chance of a buyout - so the price sinks.
When GX (and other fiber plays, LVLT, TSIX etc., etc.) went public, there were all sorts of premises behind the business model, and all kinds of expectations. Therefore you could dream, and dream big, and make all kinds of projections. And therein lies the biggest explanation of why $60 when GBLX was just a dream, and now $5.97. When you are selling a dream - how do you know the price is too high? You can always dream, and project - and people will pay HUGE amounts of money for a dream. But when grubby reality comes, well, then all the limitations come through. Simple illustration. I have a closed sack I bring to the market - and I tell you: "in this sack I've got the most beautiful and wonderful pig ever". Buyers are liable to pay a lot, for they all imagine their own versions of the beautiful pig. But if I just brought the pig in the open, not in a bag, well then, folks would just pay for a plain old pig - probably a heck of a lot less, since reality seldom exceeds wild dreams. Rarely, very rarely, it can exceed it. Those are the treasures. But most of the time, the opposite is true. That's why your Mom told you never to buy a pig in a poke, the risk is simply too high for the reward.<ggg> The investing public threw a lot of money at the promise and dream of dot coms. How many of those dot coms matched the dream in reality? That is why folks were willing to pay $60 for the dream of GX, but are only willing to pay $5-$6 for the reality of GX.
Now reality has exposed some of those dreams as unrealistic. Perhaps demand is not what was hoped for. Perhaps the growth of data and the internet is slower than was projected. Perhaps the economy slowed more than anyone expected and put a cabash on some of those plans and projections. Besides, many business models of the new telcos were built around the premise that they'll build a network that'll be bought by an incumbent (that's Jim Crowe's backgroud, he pulled it off once - and was perhaps hoping to do the same with LVLT), and it hasn't worked out like that. The bubble was also fueled by certain regulatory issues in the telecom business.
GX is still the world's first integrated global IP-based fiber optic network. It has completed building the global network, it is selling and will be selling capacities worth billions of dollars to the world's largest carriers, it has gone up the value chain by selling directly to enterprise customers, and yet the stock has gone taken a beating.
All true. But so what? You can have the best product, business etc., in the world, but if you took on so much debt in order to pay for that business, that you can't make payments on that debt - well, you'll go BK, no two ways about it, and the market will discount your stock to $0. In the case of GX, they have all those wonderful things you said. And they may even be able to survive, rather than go BK (I do believe they'll survive) - but possibly at a cost of dilution to the shareholders - and that does not help the share price.
So do investors worry? Well, they worry that GX won't be able to pull it off financially without diluting the sharholders. When the bubble was high and reality was not hitting and far enough off in the future, you could say "I believe it'll be OK", and you pay $60. Then, when the morning comes, and the bill stares you in the face, and it is time to pay NOW, rather than in the nebulous future - you will only pay $5.97. What got the investors very worried was the cut guidance - expected cut, to be sure, after all, GX cannot be immune to the economy, but so what that it was expected? Doesn't make it any better - it still sucks that they had to cut guidance. So, the shareprice sank in response to the expectation of a cut in guidance - $7. But then the cut in guidance was so big, that the investors became even more worried - and here you sit at $5.97. Because once you start doing the math, and become worried that they'll dilute, well, why would the shareprice go up? Of course, if things go swimmigly well, the economy flies, all the business from the bankrupt competition goes to GX, and everything happens just in time, well maybe, maybe, maybe, GX can do it without any dilutive events. In which case, the $5.97 will be a spectacular bargain. Place your bets - but it sure is NOT surprising that the price now is $5.97, never mind that it was once $60+. All IMO.
Good luck!
Morgan
P.S. OT re: my moniker - not very interesting - it was an accident. When I was signing up for SI, my girlfriend at the time was doing a paper on SFD - and suggested the name as a moniker. So, there - rather a banal explanation, I'm afraid, LOL! |
