Reverse split little relief for Quokka

In the latest example of the measures some companies are being forced to undertake as their shares plunge, the online sports company completed a 1-for-50 reverse stock split. Although the maneuver is intended to boost a stock's price--typically to keep the shares from being delisted by the Nasdaq--in Quokka's case the magnitude of the split was as extreme as some of the sports it features on its site, and the benefit was fleeting.

Here's what happened: After reaching a peak of about $10 last year, Quokka shares slumped to as low as 7 cents Thursday. On Monday the company completed a reverse split in which investors received one share for every 50 shares they held.

For example, as of last week an investor with 1,000 Quokka shares (trading under the ticker "QKKA") was holding $70 worth of stock based on a per-share price of 7 cents. On Monday, those 1,000 shares were converted to 20 shares of Quokka (under the new ticker "QKKAD") valued at $3.50 each, for a total value of $70.

However, as soon as trading began in the new shares, the quoted price was about $2. The shares later slid to $1.62--meaning the stock plunged by 53 percent from last week's close.

"Reverse splits usually signal the beginning of the end," said Vernon Keenan, industry analyst at Keenan Vision, a San Francisco-based market researcher. "All it does is postpone the inevitable in order to comply with the (Nasdaq's) rules.

"But reverse splits almost always drop on their open. The question is whether they can survive. This just gives them a little more oxygen," he added.

The failure of the reverse split to buoy the shares is just one of several worries Quokka executives are dealing with as investors shun Net content companies. Topping the list of concerns: Quokka faces a May 1 deadline to find a buyer or risk losing a valuable deal with NBC to cover the 2002 Olympics.

Quokka is in talks with several potential buyers, according to sources close to the company who asked not to be named. In addition, the San Francisco-based company is contemplating more layoffs and the potential benefits of seeking bankruptcy protection, which would provide protection from creditors and help it manage debts.

If the company does cut additional staff, it would represent the third staff-trimming measure by the company in six months. In November, Quokka cut 90 positions, or 20 percent of its staff, followed by additional layoffs early this year of 217 employees, or 59 percent of its work force. Sources said new cutbacks could eliminate about one-third of its staff of about 150.

Company representatives declined to comment.

Big deals at stake
At stake with the May 1 deadline are Quokka's online rights to Olympics coverage for the 2002 games in Salt Lake City, widely perceived as the company's crown jewels.

According to a March filing with the Securities and Exchange Commission, Quokka must find a strategic partner or buyer for the company by May 1 to maintain its Olympics contracts.

One major condition is that the buyer or partner must be acceptable to NBC and the Salt Lake Organizing Committee for the Winter Olympic Games of 2002. Among many stipulations, the buyer "may not be an NBC competitor or an Olympic sponsor competitor," according to the filing.

Also on the line is a separate joint venture with NBC Olympics if Quokka doesn't find a partner or buyer. According to the SEC filing, Quokka is "solely responsible for making cash capital contributions to the venture," of which NBC owns 49 percent. NBC also holds the right to annul its contract with Quokka in the event of a bankruptcy filing.

While acute, Quokka's struggles are far from unique. Like many Internet companies, it has suffered at the hands of an unforgiving market downturn. Faltering ad sales and investor disinterest in unprofitable Net businesses have sacked countless dot-coms. Fellow sports sites including Broadband Sports and Rivals.com have recently shut down.

"They're in a tough category and it's a very soft ad market right now," said Patrick Keane, an analyst at Jupiter Research. "If you're not the top 1 or 2 site in your category, ad sales will be chump change."

And they're off
Quokka started out in 1996 by producing Web sites for extreme sailing events. Its seminal project, covering The Whitbread Yacht Race, charted the course of nine boats sailing around the world via streaming video, daily breaking news and a steady flow of e-mails from the competitors. Quokka also hosted a virtual race for online fans around the globe.

This style of coverage also was employed for the America's Cup, the 2000 Olympic Games, and more mainstream sporting events such as college basketball and Major League Baseball.

But recently the company said bon voyage to its sailing coverage. A somber section of its site dedicated to sailing delivers this message: "Sailing into the sunset: Current economic winds are against dot-coms like Quokka Sports, and we at QuokkaSailing.com must say goodbye." Other event pages such as golf and baseball are in full swing.

In the last year, the company branched into mainstream sporting events through purchases of Total Sports and an investment in Golf.com. The company also acquired MountainZone.com in 2000.

In August, in a joint NBC/Quokka Ventures alliance, the companies agreed to provide detailed coverage of the Olympic Games in Sydney and in Salt Lake City in 2002. But the deal was shrouded with doubt about success because the International Olympic Committee (IOC) banned all Net ventures from streaming or allowing people to download video clips of the games.

Shortly afterward, NBC agreed to invest as much as $140.8 million in Quokka, which also issued warrants to let NBC buy as many as 10 million shares at $8.89 to $20 apiece over three years. In September, Quokka raised $76 million from such investors as GE Capital, a subsidiary of General Electric; Accel Partners; Deutsche Bank; and DirecTV.

Sources said that despite NBC's hefty investment in Quokka, the network is not a potential buyer.

Tough choices
Quokka announced in February that it restructured and reduced its debt--convertible notes issued from September 2000--from $77.4 million to about $51.2 million.

According to its annual filing, Quokka had $50.1 million in cash, cash equivalents and marketable securities as of Dec. 31. It reported that operating expenses ate up about $72 million last year.

Faced with two choices--to be a destination site for sports fans or license technology and design expertise to other event owners--Quokka struggled to find itself amid tough competition, said Jupiter's Keane.

"They have been hurt by entering broadband before there was an audience and a business," he said.

"But it has interesting proprietary technology to buy, such as game tracker technology for Major League Baseball," Keane added. He said Quokka has been shopping itself around for some time, with Disney and SportsLine kicking the tires.