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Broadcast.com sees downside

The online broadcaster, which had one of the summer's hottest IPOs, sees its shares fall on an analyst's "neutral" recommendation.

Broadcast.com, one of this summer's hottest initial public offerings, today saw its share price fall nearly 10 percent following an analyst's initiation of coverage on the company with a "neutral" recommendationm, based the stock's high valuation.

Shares of the online audio and video broadcasting service fell to as low as 54.5 in afternoon trading, down from its close of 60.6250 yesterday.

The company, which saw its stock soar 250 percent from its offering price to close at 62.75 on July 17, its first day of public trading, largely has seen its share price bounce around the low-50s to mid-60s range since then.

"We are initiating coverage of Broadcast.com with a 'neutral' rating, and this call is based 100 percent on valuation," read a report by Morgan Stanley Dean Witter analyst Mary Meeker. "We like this company a lot and we think the fundamental business outlook is great. But, simply, we believe that, near-term, we should be able to purchase the stock at lower levels."

The drop in Broadcast.com's share price followed the release of its second-quarter earnings results yesterday, in which it reported that it faces a $7 million trademark infringement lawsuit.

The company yesterday posted a widening net loss of $3.9 million, or 27 cents a share, compared with a loss of $1.5 million, or 12 cents a share, reported a year ago. Revenues rose to $3.7 million for the quarter, compared with $1.5 million a year ago.

Meeker predicted that the company will break even by the year 2000, with revenues of $64 million and net income of $5.2 million.

According to the quarterly financial report Broadcast.com filed with the Securities and Exchange Commission, the lawsuit it is facing involves Radio Channel Networks, which filed suit July 8 in U.S. District Court for the Southern District of New York alleging that Broadcast.com's use of "radio channel" on its sites is a trademark infringement.

"The company believes that the allegations in this action are wholly without merit and intends to vigorously defend against this action and seek its early dismissal," Sherry Manno, a company spokeswoman, said in response to an email.

She noted that information about the lawsuit was disclosed in the company's prospectus when it filed to go public.

Reuters contributed to this report.