COMMENTARY--The following statement from 24/7 Media CEO David Moore succinctly explains how the online advertising firm ended up in its current state: "The demise of many Internet companies was unexpected."
Penny stock has a fluid definition. Depending on which financial glossary you care to use, the upper threshold can be anywhere from $1 to $5. I go with the latter, because stocks that dip under $5 rarely rebound.
In the case of 24/7 Media (Nasdaq: TFSM), you really are dealing in pennies, or at least quarters. TFSM shares currently trade at 50 cents, down a couple of dimes from the previous session’s close.
Only one thing really stood out from the company's conference call yesterday, which was abbreviated because 24/7 Media executives chose not to have a Q&A session. They declined to answer questions because they’re in heavy negotations with folks who can provide money.
And that’s the stand-out question of the moment because 24/7 is living almost day-to-day. Moore admitted the company currently lacks the cash to reach profitability.
Cynics would say the company will never have the money, because the company will never be profitable. It’s certainly easy to question the judgement of an executive team that describes the dot-com shakeout as “unexpected.”
Many people were warning the Internet bubble would burst years before it actually happened. Wall Street and companies like 24/7 Media chose to ignore them, but that doesn’t mean the collapse wasn’t expected. It surely was.
Moore went on to provide doubters with more reason to look for blinders on his head.
”The adoption of the online advertising medium by traditional advertisers has taken longer to materialize than we hoped,” Moore said. “While visibility remains poor, we firmly believe in the long-term viability of the interactive marketing space.”
Not once during yesterday’s analyst call did 24/7 Media executives accept an ounce of culpability for their company’s current mess. Blame it on the dot-com meltdown. Blame it on economic weakness. Blame it on brick-and-mortar companies’ refusal to embrace online advertising.
I’d be more optimistic about 24/7 Media if the company recognized that what has passed for online advertising so far simply doesn’t work well enough to attract “traditional” companies. Other marketing firms realize they need to change, so a company like DoubleClick (Nasdaq: DCLK), for instance, is revamping its media business and looking to get more out of its data and technology units.
Sadly, 24/7 Media displays not an ounce of self-awareness. Instead of thinking about better ways to do business, the company touts “Did You Know” blurbs such as this one on its Web site: “Online Banner Advertising Raises Brand Awareness By 6% On Average.”
At least the revenue from those easy-to-ignore banner ads didn’t fall short of estimates that were already lowered twice before the fourth-quarter report. On the other hand, 24/7’s e-mail marketing revenue was an unmitigated disaster; that segment missed analysts’ estimates by more than half in the December quarter.
So much for the benefits of targeted e-mail.
The company has slid to a point where it can only borrow money on very onerous terms. 24/7’s latest credit line has an upper limit of $50 million over the next two years, but the actual amount available varies, depending on 24/7’s stock price and trading volume.
In any case, $50 million isn’t much for a company that burned through at least $20 million in cash in the latest quarter, by at least one analyst’s estimate.
Message board posters have been reduced to wondering about a buyout. I’ve said it before about failing dot-coms and I’ll say it again: there’s very little worth buying, especially when you’re talking about an also-ran like 24/7, and especially in the advertising industry, which is going through an overall slowdown anyway. Why bother buying a company that posted operating losses that exceed its total market capitalization? From a rival’s point of view would be easier, cheaper and just as effective to pick off customers after 24/7 dies on its own.
You can paint a similar picture for most of these sub-$5 equities, but plenty of money remains tied up in these issues. People should save themselves the heartache and let the stocks go. 22GO>