2HRS2GO: PSINet brings shareholders down

4 min read

COMMENTARY -- This morning's conference call for PSINet (Nasdaq: PSIX) could not have been more depressing.

Whether the news is bad or good, corporate executives' quarterly talks with analysts usually leave any number of impressions with me: arrogance, confidence, satisfaction, smugness, disbelief, irritation, hope, ennui.

Yet until today I've never heard a call that seemed so ... glum.

I'm not alone in my PSINet sentiments. It was among the most heavily traded stocks today, shedding more than half its value to continue its trend of several months:

That 2-for-1 split seems eons ago, doesn't it?

Admittedly, PSINet has much to be down about. Third quarter results were disappointing. The news went further south with a suggestion that the fourth quarter would also be a letdown. A dearth of specific guidance made it even worse.

All the more reason for executives to provide a glimmer, a thread, a hint -- anything to demonstrate that management knows what to change and turn around.

What shareholders got instead was emptiness. You can't even ridicule PSINet's plans, because there's nothing there.

Here's what the corporate strategy amounts to. Put off hosting center construction beyond 2001. Move a few executives around. Dump some businesses -- I wonder how the still-extant Xpedior (Nasdaq: XPDR) feels about considered a "discontinued operation" -- described only seven months ago as "an important component of our Internet Super Carrier strategy." Then rely on current assets to attract enough business to become cash flow positive.

Or put another way: slim down a bit and hope for the best; details to come later.

CEO William Schrader and CFO Larry Hyatt simply had nothing more to offer. "Let me say what a great company PSINet is...undervalued...well-positioned to deliver...We are properly positioned to take advantage of a downturn in the market, or a resurgence once the recession ends..."

Evidently the executives never wondered why their company, if it's in such a great position, is doing so poorly. They brushed off analysts' attempts to figure out what went wrong. "There's not really a lot of purpose served in going back and asking why," Hyatt said.

If executives provide neither forward guidance nor a detailed explanation for the past quarter's failures, why bother having a conference call? Why go through the trouble of not only webcasting it, but doing so with broadband video, no less?

(Memo to Wall Street: Video conference calls are a bad idea -- your average corporate suit already sounds stiff and robotic. Put him on camera reading a statement, and you have the equivalent of talking furniture.)

PSINet executives blamed the world for their problems.

How was PSINet to know, Schrader asked rhetorically, that e-commerce consulting demand would fall dramatically? It's not PSINet's fault that free service providers have blown up the dial-up ISP business. And why blame PSINet for what seems to be a slowing world economy?

"I believe it is tied to a recession which is just starting, it should be a mild recession, it might have started 6 months ago, I don't know," Schrader said. "I believe it is general external factors."

Maybe, but if this stock is going to turn around, people need to believe in management's ability to rise above "general external factors."

Executives seem deflated rather than energized by the challenge. Schrader and Hyatt exuded all the inspiration of cadavers.

The saddest aspect of the whole thing is that they seem to be trying their best.

"We are focused on shareholder and bondholder value here," Schrader said. "We are doing everything that we can. And believe me, I am properly motivated here. And we are able to make the decisions, as we've demonstrated."

I don't doubt Schrader's sincerity. But making decisions?

Deciding two years too late that maybe PSINet should find a buyer or merger partner instead of remaining independent? Deciding to exit the consulting business so soon after buying into it? Deciding to stand pat on the rest of the business?

Some decisions. Perhaps the best one was made by former president and COO Pete Wills. He left. 22GO

Related links:

• PSINet sees weaker revenue, need for funds
• PSINet squeaks past estimates
• PSINet names new CFO
• PSINet tops estimates in 1Q
• PSINet buys Metamor
• PSINet reports 4Q loss, CFO resigns
• PSINet lands license for Hong Kong
• PSINet splits stock 2-for-1
• PSINet sees 4Q revenue spike
• PSINet buys Transaction Network Services, eyes e-commerce
• PSINet posts narrower than expected loss
• PSINet rallies to record close
• PSINet tops 4Q estimates as sales climb 170 percent
• Wireless expansion plans boost PSINet
• PSINet narrows 3Q loss, beating expectations
• Swiss expansion lifts PSINet shares
• PSINet causes a stir in analyst community
• PSINet beats 2Q estimates as revenue climbs
• PSINet buys four Internet cos. for $46 million in cash>