Metricom shares still on tremendous roll

Shares of Metricom Inc. (Nasdaq: MCOM) continued their incredible rally Tuesday, surging up 7, or 25 percent, to an all-time high of 34 7/8. The stock was trading at just $10 a share in mid-June.

So what's going on?

Well, on June 21 MCI WorldCom Inc. (Nasdaq: WCOM) and Paul Allen's Vulcan Ventures invested $600 million in the provider of wireless data communications systems.

By purchasing 60 million new convertible preferred shares of Metricom stock at $10 per share, the deal gives Vulcan Ventures 49 percent ownership while MCI WorldCom now holds 38 percent. Those lucky shareholders who held on through the dark days now hold only 13 percent of the remaining outstanding shares.

Metricom mainly hangs its hat on its Ricochet service, which provides users of portable and desktop computers with wide-ranging, extremely fast wireless access to e-mail and the Internet. Because the Ricochet network does not use phone lines, the service bypasses such common problems as busy signals and expensive connection time.

MCI WorldCom, which is in a dog fight with the rest of the telecommunications industry for a piece of the business-user market, sees Metricom as just another value-added service it can shine up for its customers and potential customers.

Short on cash and profits, Metricom desperately needed someone to come in and finance the expansion of its Ricochet service to new and larger markets.

Right now, Ricochet is available in select metropolitan areas at speeds up to 28.8 kbps. By mid-2000 Metricom plans to offer a much speedier 128 kbps Ricochet in 12 more major cities, including New York, Chicago and Los Angeles. By mid-2001 Metricom hopes to have added nearly 50 metropolitan areas to its Ricochet coverage.

From an investment standpoint, the most interesting thing about Metricom might be the lack of coverage from institutional investment houses. Only one analyst, Tim Weller at Donaldson, Lufkin & Jenrette, is currently following the stock.

The MCI deals gives Metricom access to MCI's extensive high-speed data and Internet network. MCI will also become a major distribution channel of the Ricochet service, as agreed under a non-exclusive five-year contract valued at roughly $350 million.

Still, Metricom is hardly a cash cow.

Last quarter, it lost $15 million, or 80 cents a share, on sales of $4.2 million.

However, it's on the move. Its sales grew 18 percent in 1998, from $13.4 million to nearly $16 million, and up another 16 percent in the first quarter to $4.2 million.

Subscriptions to the Ricochet service grew 37 percent in 1998, from 19,000 to 26,000. By April 1999, Metricom had added another 3,000 subscriptions, bringing the total number of Ricochet users to nearly 30,000. IBM (NYSE: IBM), Xerox (NYSE: XRX) and the Los Angeles Police Department are just a few of its largest customers.

The last estimate provided by First Call Corp. pegs Metricom for a loss of $6.12 a share in the current fiscal year.

The stock was trading at a 52-week low of 3 in October.