Netcom stock up before meeting

Investors are expecting Netcom (NETC) to say very clearly tomorrow how and when the company is going to become profitable.

The company's stock rose today in anticipation of the annual shareholders meeting scheduled for tomorrow. The company will take the opportunity to explain a new business model for the national ISP and discuss its financial prospects, according to Laura Crowley, manager of investor relations at Netcom.

The company's investors are anxious to hear some good news.

"The Street has been brutal to the ISP sector, and they are waiting for profitability. We are clearly on the road to profitability, but investors are still uncertain of the [industry's] business model," Crowley said.

Netcom's stock has fallen consistently during much of the past year, plummeting from a 52-week high of 40 last June to its low of 7-7/8 in March. The stock recently has edged up, closing today at 15-15/64, up 1-7/64 over Friday's close. But that is still less than half the value of Netcom stock in June.

Nevertheless, investors have been hopeful about the shareholders meeting and consequently have helped the stock inch upward, said Timothy Summers, an analyst with Principal Financial Securities. The company posted a loss for its most recent quarter, but a substantially smaller one than predicted.

The Netcom turnaround plan involves changing the direction of its focus to company clients, Crowley said. The trick, she added, is not to alienate its individual dial-up customers because many of those accounts are for small and home businesses.

Summers thinks Netcom is taking the right approach in a tough market for national Internet providers. He said it is difficult for companies to make much money if they're charging home users only $19.95 per month for unlimited usage.

"They have reoriented their target market, put in place a new pricing schedule, and plan to become profitable sooner than the old strategy," he said.

Summers, for one, expects the company to become profitable by 2000 and to reach cash-flow neutrality--a milestone toward becoming profitable--by the end of this year or early next as it cuts back on expansion.

Still, considering how much they've lost this year, shareholders can be expected to closely examine the compensation of Netcom's major officers.

According to its proxy report, Netcom chairman, president, and CEO David Garrison made $225,000 in 1996 after joining the company in February. The proxy also stated that Garrison would receive a bonus of up to 100 percent of base salary, depending on the performance of the company and individual performance. Garrison, however, received a bonus of only 22 percent of salary.

Webb Bassick, a consultant at the Hay Group, said the small bonus likely indicates that company performance fell short of goals. That leaves Garrison highly motivated to follow through on the company's new business model.

"His options are under water, his bonus was less than he wanted it to be, and he did not get a raise...Now he has all sorts of motivation to turn around the company," Bessick said.

Investors are still concerned about how the company plans to increase its subscriber base. "They say it will be slow, and that is an issue toward reaching profitability," Summers added.

Although Netcom posted a wider loss in this year's first quarter over a year ago, the loss was smaller than analysts expected because of tightened operating expenses and rising revenues. The online provider's loss for the quarter ending March 31 was $9.2 million, or 79 cents a share, compared to a loss of $6.6 million, or 59 cents a share, for the year-ago period.

Wall Street expected Netcom to post a loss of 97 cents a share, according to First Call.