2HRS2GO: Salon.com sees bright future

When your company has reached penny stock depths, maybe you can't help but wax positive in interviews, because the potential rewards at that point are far greater than any possible downturn.

That seems to be the attitude of Michael O'Donnell, CEO and president of Salon.com (Nasdaq: SALN), the would-be online master of culturally-cognizant news and features.

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Salon might be the most highly regarded online magazine around, but it's never been a Wall Street darling. The company's open-auction IPO last year wasn't well-received and since then, shares have spent most of their time trading below that initial offering price of $10.

Broad market declines over the last couple of months accelerated SALN's slide into a plummet from which it has never recovered. Shares fell 1/16 this morning to trade at an all-time low of 2 1/8 by early afternoon, even as the overall Nasdaq continued its recent rebound.

The Wall Street cause of Salon wasn't helped when the company last week reported disappointing quarterly results on the bottom line. Perhaps that spurred Salon to engage in a bit of proactive spin control that included an e-mail missive to ZDII that basically said, "Salon also reported some good news. Talk to us."

So I spoke to O'Donnell for about 25 minutes this morning. For the most part, he stuck to the same message Salon has been preaching for the last several quarters: Look at us as a cross-media company.

Salon has boosted revenue 175 percent year-over-year mostly on its online business, but the company has other media ventures in the works, including book deals and an upcoming television show. Those will drive the top line even faster, O'Donnell says.

The fact that online-to-offline moves from other companies (including Ziff-Davis) haven't been great financial successes doesn't deter the Salon CEO. He notes other cross-media plans have run into unique (rather than general) problems, such as ZDTV's inability to get onto a cable network, or the well-publicized blow-up between TheStreet.com (Nasdaq: TSCM) and the Fox News division of News Corp. (NYSE: NWS).

Salon doesn't worry about the costs of going cross-media because the company merely lends its brand and content; partners put up the money. Ultimately, O'Donnell hopes to see a 50-50 split in Salon's revenues between advertising and content syndication.

Despite the recent market turmoil, Salon will be fine because it has plenty of cash, O'Donnell says. The company has more than a year of cash in the bank, and its expense growth is starting to subside now that much of the infrastructure has been built out.

The company also has the resources to raise more cash if it has to, O'Donnell says. Unfortunately for Salon, that likely means giving up equity.

As long as traffic continues growing -- the company now has 3.7 million users -- Salon will start earning money sometime over the next several quarters, O'Donnell believes. Profitability ought to arrive when the company hits the 5 million user mark, he says.

Salon plans to soon give Wall Street a more concrete date for reaching the black, O'Donnell says. He didn't provide a definite date for announcing a definite date for profits.

One of the long-held criticisms of Salon's ad revenue has focused on "barter" sales in which companies trade ad space with each other, as opposed to actually giving cash. Barter agreements generated 15 percent of the company's revenue in the December quarter.

Salon only includes these ad space exchanges as revenue because accounting guidelines require barter deals to be recorded on the top line, O'Donnell says. Besides, he notes, it beats filling up the space with house ads.

Of course, the real problem is selling out advertising inventory, a task that wasn't helped when Salon's head of sales and marketing left two months ago to become president of an Internet company that is now defunct, says O'Donnell.

You have to wonder about turnover in Salon's executive suite. In addition to the sales and marketing defection, the company lost its CFO earlier this month when he took a job as CEO of a start-up.

O'Donnell dismisses the departures as not-irregular occurrences in the Internet world, where job-hopping is common. And the departing executives left for loftier jobs that simply weren't available at Salon, notes O'Donnell.

In a perverse way, Salon can offer potential VP replacements a more enticing financial package because of its stock woes. Or least O'Donnell thinks so:

"It's really like getting pre-IPO shares that are already public. ... Someone coming in now, he's looking at saying, 'Hey, there's a lot of upside to this, if I make it happen, and I can really impact the numbers here, I can increase my value, $10, $20, $30 a share, versus someone coming in at $20 a share, you don't know if it's going down to $10 or going up to $50...'

"Could we go down (further)? You could always go down, but we believe there's a lot of upside to the company and we're using it as a recruiting tool."

Now that's spinning at its best. But Salon has always been superb with words. 22GO>