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Technology Stocks : OnSale Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Don Westermeyer who wrote (1433)	7/29/1998 3:06:00 PM
From: Don Westermeyer	Read Replies (1) \| Respond to of 4903

Briefing must have read my post.: ONSALE (ONSL) 25 -1 5/8. Another Internet company tries to pull a fast one with their earnings reports. This is getting ridiculous. Let's make this absolutely clear: just because a charge only occurs one-time, it doesn't mean it can be excluded from operating expenses (or profits). Only non-operational costs that will not occur regularly, such as gains or losses on sales of assets, can be excluded. Onsale reported a loss of $0.21 per share for the second quarter after the close Tuesday. That was a penny worse than the expected $0.20 per share loss. The press release, right after the statement about the $0.21 loss, mentions it includes a "previously announced one-time marketing payment to Cendant Corp." This morning, the company said that came to 3 cents. This does not mean that this cost should be excluded from earnings. The company did not beat by 2 cents, it missed by a penny. Fact is, marketing costs count. Period. They are operational expenses that the company expects to gain a benefit from it. Excite tried to pull the same stunt, suggesting its big marketing payment to Netscape didn't count because it was just one-time. There is absolutely no justification for taking out marketing costs from operating earnings. Amazon.com (AMZN) also gave a misleading earnings reports highlighting pro-forma data to get investors to ignore amortized costs that fully belong in operating earnings, and CNet (CNWK) buried a one-time gain deep in their data. To be fair, none of these companies made any untruthful statements. What they did was feed the market what it wanted to hear, and the market bit. On each one, press reports have presented the most favorable, yet misleading, interpretation of the data. This is a dangerous trend. Even operating earnings are suspect these days, but when the market starts using anything that makes operating earnings look better than the really are, investors should get nervous. Hats off to Volpe Brown Whelan & Co. analyst Charles Finnie who downgraded ONSL today from "strong buy" to "buy", and told us no one should be fooled into accepting those 3 cents spent on marketing as something to exclude from operating earnings.