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THE DAY AHEAD: NetZero has cash, no outlook

COMMENTARY -- NetZero (Nasdaq: NZRO) has more than eight quarters of cash left, financial discipline and the ability to outlast its free ISP competition. But is being the last free ISP standing a goal worth pursuing?

Nope.

Simply put, investing in any ISP not named AOL stinks. Big-name ISPs that actually charge folks are also struggling. Just look at EarthLink (Nasdaq: ELNK), which is being pelted by AOL, MSN, Juno Online and NetZero. Common sense dictates that free ISPs will be bad investments.

Nevertheless, NetZero is bullish on its prospects.

NetZero easily topped estimates with a fiscal first quarter loss of $23.8 million, or 22 cents a share, on sales of $16.5 million. The company grew its registered user base to 5.7 million.

Sounds great until you consider the company reported revenue of $18.7 million in its fourth quarter. NetZero was hit by the online advertising slowdown, the company held its ground on ad rates and revenue fell. "The numbers reflect what we faced in the quarter," said CEO Mark R. Goldston.

Guidance? What guidance?

Let's give NetZero a round of applause for financial discipline and lowering its costs, but there's not a speck of visibility into its business model.

Officials said revenue will be flat in the December quarter with losses in line with current estimates. But management can't foresee anything past New Year's Day. You'll need a Ouija board to figure out projections for the rest of fiscal 2001. "This is still an evolving business model, and it's extremely difficult to provide guidance," said CFO Charles Hilliard.

It's also difficult to invest in any company that can't project revenue or earnings four months from now. Goldston talked a good game about targeted ads, critical mass and a strong brand. "Free Internet access is here to stay," he said. "The market leader will be NetZero."

Goldston must have had the Ouija board, because I don't see enough facts to justify taking a chance on the stock. NetZero remains in the public venture capital stage.

Cash buys time

NetZero's biggest asset is cash, unless you count the company's partnership with tired radio personality Rick Dees as a plus. NetZero ended the September quarter with more than $220 million in cash, and is hoping its business model "evolves" before it runs out of the greenbacks.

Meanwhile, NetZero will acquire customers in bankruptcy court. On Wednesday, NetZero said it acquired bankrupt Freenternet.com's assets.

NetZero burned through more than $27 million in the quarter, so it should have more than eight quarters of dough at current rates. Officials didn't speculate on cash burn rates.

For comparison's sake, Juno Online (Nasdaq: JWEB) ended its latest quarter with more than $68 million in cash. Juno, which even has a few paying customers, predicted flat sequential revenue growth for its December quarter because of the online ad slowdown.

Where's the Nasdaq heading?

Ralph J. Acampora, Prudential Securities technical analysis guru, sure has a lot of one-liners for a guy that reads charts all day.

For the uninitiated, Acampora is a chart watcher who couldn't care less about the alleged "fundamentals" behind stocks. "The most fundamental thing about a company is its stock," he said. Acampora, who was speaking at the Prudential Volpe Technology conference in New York Wednesday, is part tarot card reader and part psychologist. "You can't separate people from the markets," said Acampora.

He's also right a lot. Acampora, who reckons the markets are just taking a breather before taking off again, was bullish on the Dow Jones industrial average. The Dow will hit new highs by the end of the year, he said. The Nasdaq will trade between 3,000 and 4,200 and is likely to hit 4,200 before the year ends. If the Nasdaq falls below 3,000, it won't be pretty for tech stocks.

Acampora said he doesn't buy into the new economy implosion talk, or the resurgence of old economy stocks, also known as "born again economy" stocks. Tech stocks always lead the way over the long haul -- period. In the late 1800s, railroad equipment was the big thing and the companies that made switches were hot commodities. Switching companies were everything. Sound familiar? Can you say Cisco?

Acampora is banking on a "honeymoon rally" once the presidential election is history. No matter who wins -- Bush or Gore -- the markets will rally, he said. Which candidate is Acampora backing? He wasn't saying. "I'd pull the lever for gridlock if it were a choice," he said.TDAIN