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Investors sue Macromedia again

Macromedia and its executives are been hit by another shareholder lawsuit, the second one this summer.

Macromedia has been hit by another shareholder lawsuit, its second this summer.

The class-action suit is the latest in a string of headaches for the multimedia software developer, which in the past year has been plagued by losses, layoffs, management restructuring, product delays, and a steady slide in the value of its stock.

The lawsuit, filed August 22 in the California Superior Court in San Francisco, accused Macromedia and five executives--including chairman, CEO, and former president, John Colligan--of misleading stockholders on the company's product success and financial health and of engaging in insider trading during the class period of April 18, 1996 to January 9, 1997. (Colligan sits on the board of directors of CNET: The Computer Network.)

During the class period, Macromedia's stock traded as high as 46-1/2. The lawsuit accuses defendants of pocketing nearly $9 million by selling 257,000 shares of stock at artificially inflated prices.

Macromedia would not comment on the suit, but spokesperson Kimberly Leo described it as similar to the suit filed against the company at the end of July. In response to that suit, Macromedia said in an SEC filing: "The company believes that the complaint has no merit and intends to vigorously defend the action."

One analyst downplayed the importance of the shareholder lawsuits and of Macromedia's other woes as well. "Frankly, it seems like half the companies I know are being sued by shareholders," said BT Alex. Brown equity analyst Larry Marcus. "Someone should sue the lawyers."

Marcus described Macromedia as a company in a "triple transition," shifting its product focus from the Macintosh to the PC market, retooling its distribution from CD-ROMs to the Internet, and changing its overall strategy to embrace a multimedia world fundamentally altered by the growth of the Web.

"There's a general faith that the company is going to emerge from this transition with great products and reengineer itself to adapt to the Internet with new business models and new distribution to take advantage of new opportunities," added Marcus.

Macromedia has undergone a major shakeup in its management team, which in the past several months has seen a new senior vice president of revenue, a new vice president of marketing, and a new vice president of product marketing for Internet and multimedia authoring. Though the company's stock has been on a steady slide since its September 1996 high of 23-1/2, that new management team has inspired confidence among investors, according to Marcus.

"The stock, on an earnings basis, is still pretty expensive, trading at over two times sales," he said. "If there wasn't a solid management team in place, the stock would be much lower."

Macromedia's product line has been a cause of investor concern as well as optimism. In March, the company blamed its expected fourth-quarter loss on product delays. Both Alex. Brown and UBS Securities cited a dearth of new products in predicting flat growth for the developer in the near term.

The company's drawing and illustration tools, xRes and Freehand, face stiff competition from Adobe's Photoshop and Illustrator products, respectively. Even Macromedia's authoring tools, Director and AuthorWare, which lead the market, found themselves in trouble when the CD-ROM publishing market failed to take off.

"The number of CD-ROM titles shipping is going up, but the companies offering them are not going up that fast," said Ralph Rogers, an analyst with Dataquest. Meanwhile, the Web has siphoned off much of the creative activity that once fueled CD-ROM publishing, so Macromedia in turn has been adapting its tools for Web authoring, Rogers added.

Other Macromedia tools aimed at the Web market include its Flash animation product for use with banner advertisements, and Key Grip editing software, which has been announced but not yet shipped.

Rogers also praised the company for revising its strategy to focus on markets rather than product lines. "Their alignment toward markets is the right thing to be doing and should be paying off for them in the next six months."