2HRS2GO: Salon.com figures need clarity

4 min read

Call me naive and deluded, but I always figured a company founded by journalists would be able to write press releases that are clearer than your average propaganda pieces.

As usual I was wrong, judging by Salon.com Inc. (Nasdaq: SALN) and its latest financial news release.

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The people who run Salon.com aren't stupid. They know Wall Street compares a company's reported per-share bottom line with consensus analyst estimates, usually from First Call, although other companies such as I/B/E/S and Zack's (which happens to be a provider for this website) also provide consensus forecasts. Regardless of which service they care to use, companies know they're out to beat the Street.

Analysts post their per-share estimates based on the current number of shares. The U.S. Securities and Exchange Commission requires companies to file their financial results based on average number of shares outstanding during the quarter. That inflates the per-share earnings or losses of companies (like Salon.com) that just went public, since they obviously had far less shares before the IPO than after it.

Thus, we get paragraphs like this:

"...the net loss for the first quarter of fiscal 2000 widened to $4.6 million, as compared with the net loss of $1.4 million for the same period a year earlier. Net loss attributable to common stockholders for this quarter was $16.1 million, or $10.10 per share, in comparison to the net loss attributable to common stockholders of $1.4 million or $3.75 per share for the same period a year earlier. The net loss attributable to common stockholders contains a one-time non-cash preferred deemed dividend..."

A loss of $4.6 million? Golly, what a huge hole, right? No.

The only analyst who bothered to provide an estimate for First Call predicted a loss of 61 cents a share. If you take that $4.6 million loss and divide it by 10.7 million shares (the number of shares outstanding after the IPO) you get a loss of 43 cents a share.

I suspect most people reading ZDII know that, but obviously someone in the world doesn't, since Salon.com shares are down more than 20 percent today, accelerating a slide ongoing since mid-July. Not that it takes much to move the lightly-traded stock -- today's volume barely had cracked the six-figure mark by early afternoon -- but still, at least a few people out there are pessimistic. Or at least they're playing the technicals that way.

Yet Salon.com actually had a typical quarter for an website: revenues rose from an almost infinitesimally minute base to a merely tiny one; traffic moved up steadily; a bunch of distribution and content licensing deals were signed. Oh, and losses more than tripled. If you listened to the conference call, you learned Salon.com got 11 percent of its tiny revenue from barter deals in which the company received free advertising space rather than cash.

It's nothing out of the ordinary for a newly-public Web operation; even the barter deals are nothing new for Salon.com, the company's been doing that since its inception. But the fact that Salon.com buried much of its financial data at the very end of the news release's main text probably didn't help. Even less helpful was the company's failure to remind people of losses per share based on post-IPO shares outstanding.

The SEC has its rules for reporting, but that doesn't mean you can't go beyond that in a news release or in a conference call. A company like Salon.com should be particularly careful about educating the public because unlike many publicly traded companies, Salon is mainly owned by individual investors, thanks to the Dutch auction format used for its auction. And a company born as the brainchild of ex-reporters -- founder David Talbot used to work for the San Francisco Examiner, as did many of Salon.com's executives -- should be happy to provide as much information as it can.

For some reason it didn't, investors mistakenly saw a bigger blotch of red ink than they anticipated, and Salon.com's shares are suffering for it today. Most investors already wonder if Salon.com is ever going to make money; the last thing the company needs to do is make the picture look even worse than it already is.

Other issues:

  • Hotjobs.com Inc.
  • (Nasdaq: HOTJ) Even bringing 18 underwriters on-board didn't convince the market to go for this initial public offering, which saw shares fall at the open. Can't fault investors for lacking interest, since Hotjobs is merely the latest in a sea of job sites on the Web. The company claims to be different in giving job seekers the ability to block certain companies from seeing their resumes. Maybe it prevents your boss from seeing your resume, but so what? Most high-paying jobs are still, and probably always will be, acquired through old-fashioned networking.

  • Cisco Systems
  • (Nasdaq: CSCO) The world's largest network equipment maker is scheduled to report quarterly results today. First Call predicts 20 cents a shar. You can safely assume Cisco -- which still commands a near-monopoly in its market, even if some challengers are up-and-coming -- will beat the consensus number by at least a little bit.

    Broad market indices continued retreating in mid-afternoon trading. The Nasdaq Composite Index was down 62.52 to 2,456.46, the S&P 500 lower by 21.86 to 1,275.94, and the Dow Jones Industrial Average down 102.90 to 10,604.80. 22GO>