CDNow (Nasdaq: CDNW) tumbled 12 percent Monday after Barron's reported the company was running low on cash.
Barron's in its March 20 edition reported that CDNow had less than one month of cash remaining. CDNow disputed the claim. As a result of a strategic investment by Time Warner and Sony, CDnow said it expects that it has sufficient cash for at least six months.
Investors weren't relieved as CDNow shares fell 25/32 to 5 31/32.
On March 13, as part of the Columbia House merger termination announcement, CDNow, Time Warner and Sony announced that Time Warner and Sony have agreed to commit $51 million to CDNow. Time Warner and Sony invested $21 million as an equity investment, and also converted a $30 million short-term loan commitment into long-term convertible debt; $10 million remains to be borrowed under this loan commitment.
Prior to the announcement, CDNow said it had $11 million in cash on hand, and now has cash and sources of liquidity of approximately $40 million.
CDNow also said March 13 it had a plan to reduce quarterly operating expenses of $10-12 million and a lower ongoing quarterly cash burn rate of less than $15 million per quarter.
Over the next quarter, the company said it will reduce costs almost one-third by lowering marketing expenses and implementing other belt-tightening efforts.
At least CDNow wasn't alone with its woes. The Barron's report dinged a handful of Net companies. Barron's ranked Internet companies based on how fast they were expected to run out of money. CDNow placed second, behind Pilot Network Services (Nasdaq: PILT), which is expected to go broke first of the 207 Internet stocks Barron's ranked. Pilot Network Services was down 10 percent, or 5 1/8 to 44 3/4. Secure Computing (SCUR), in third place, was also down 15 percent, or 3 23/64 to 19 33/64.