InfoSpace's shares plummet to earth
Following its management shake-up, the company has lost as much as 35 percent of its value in the last two days and has been hit with a string of analyst downgrades.
The company, which provides Internet applications and infrastructure services for wireless carriers and Web sites, finds its once-lofty stock further depressed after announcing Monday its chief executive, chief financial officer and chief operating officer have all resigned.
Six analysts have downgraded the stock since Monday, and two analysts have lowered its 2001 earnings outlook, according to a survey of estimates from First Call.
InfoSpace is expected to now earn 13 cents a share for 2001, down from 14 cents a share prior to the management shake-up.
Wall Street's concerns range from the company's ability to push ahead on its wireless initiative, to meeting estimates for the coming year, according to analysts.
"We think the stock will mark time for a period in which new management...comes back up to speed, and in which the market determines whether these executives left because of specific challenges in the business," Merrill Lynch analyst Virginia Genereux said in a report.
She added that InfoSpace's projected $360 million in revenues for 2001 could be a "stretch" in the current market environment. The company reports its fourth-quarter results Monday.
Vik Mehta, a Goldman Sachs analyst, shares the same view as Genereux and believes InfoSpace's management is "aggressive" in its outlook for 2001. He lowered revenue estimates to $341.6 million from $362.4 million and cut earnings projections to 12 cents from 13 cents a share, as late as last month, according to his research report.
He also noted: "Even though the company already trades at a value below its peers, we do not foresee any near-term positive catalyst that will give the stock a positive lift."
Peter Friedland, an analyst with WR Hambrecht, noted in a report that the return of Chairman Naveen Jain as CEO will help mitigate any disruptions to InfoSpace's business. But he cautioned that the absence of the former CEO and chief operating officer will create a lack of management continuity.
The departures of Arun Sarin, former CEO, and chief financial officer Rand Rosenberg were because of some geographical difficulties. Problems mounted with operating a fast-paced company with the two executives living in the Bay Area and absent from the Bellevue, Wash., headquarters for most of the week, said Jain, in an earlier interview.
Both Sarin and Rosenberg declined to comment. Sarin will remain a director with the company.
Russell Horowitz, chief operating officer and founder of Go2Net, which InfoSpace acquired, resigned as the company sought to have one leader and develop one team, Jain said. Horowitz, who did not return calls to his home, will serve as a consultant to the company.
With Sarin's departure, the former CEO leaves the company with little financial gain.
He was granted 7 million split-adjusted options with a strike price of around $40 as part of his employment contract, according to a company representative. Under the contract, he could exercise 25 percent after a year with the company.
But Sarin is leaving before his first year and is leaving behind options that are currently worthless. The stock has slid dramatically down from its lofty days in the $130-range, post split, dipping as low as $5.78 Tuesday.
Sarin's agreement also called for him to serve as CEO of InfoSpace's wireless division, Saraide. InfoSpace acquired an 80 percent stake in wireless Internet provider Saraide for about $314.9 million in late 1999.
Before joining InfoSpace, Sarin was CEO for Vodafone-AirTouch's U.S. and Asia regions. His employment agreement called for Sarin to spend his first six months building up the wireless business, which Wall Street has applauded.
In return, Sarin had the option to purchase up to 7 percent of the outstanding shares in privately held Saraide. That was also contingent upon his year anniversary, a representative said.
Sarin's main form of compensation came from his base salary of $200,000, rather than the millions in options that are now essentially worthless.