burn followup

Doug Henwood dhenwood at panix.com
Mon Mar 27 07:20:31 PST 2000


[and the followup from today's Industry Standard]

Barron's Goes Mano a Mano With the Net - Again

Net fans love to skewer Barron's for its refusal to bow to the New Economy. But when the cantankerous weekly issued a life-expectancy chart for 200 Netcos, tracking the dust-up that followed grew tricky. The reason? Several media outlets showed up on the endangered Net species list.

The fuss began when Barron's hired Pegasus Research International to sift through fourth-quarter data for 207 public Netcos. Pegasus copped a no-projections-allowed stance - it based its prognosis for the companies based on the growth rate they had experienced in the quarter. Cash infusions after Jan. 1 weren't counted. The outlook was ugly - according to the report, 51 of the companies will burn through their cash in 12 months. Imminent flameouts include online music store CDnow (No. 2 on the list, due to run out of cash in March), network security company Secure Computing (No. 3, April), and health site drkoop.com (No. 7, June). Nervous investors trashed the companies' stocks. B2B exchange company VerticalNet (No. 5, May) fell 17 percent to $183, and e-business provider Pilot Network Services (No. 1, March) dropped $7 to $43.

CNET, CBS MarketWatch, and TheStreet.com all made the extinction list. Fortunately for CNET (No. 100, December 2001), its mission is tech news rather than financial tidbits, so it tiptoed away from the Barron's melee after granting it a fig leaf's worth of coverage. CBS MarketWatch (No. 6, May) squirmed more conspicuously. Its coverage of the brawl included no quotes or comments in support of the weekly's findings. But it did publish several execs' defense of their organizations, including MarketWatch's CEO Larry Kramer, and let analysts air their Barron's-bashing opinions. Legg Mason analyst Todd Weller swatted at the mag for bundling "non-cash operating expenses," such as amortization and stock compensation, into its tally of cash-burn rates. In a research note that MarketWatch quoted, Merrill Lynch's Henry Blodget chimed in that Barron's use of fourth-quarter operating losses as a proxy for cash flow was "not appropriate."

Fellow listee TheStreet.com (No. 110, July 2002) whistled past the graveyard with more balanced coverage. David Shabelman, a Street.com reporter who sometimes writes for The Standard, reported with amusement that as investors were drop-kicking the supposedly doomed Net stocks, "research analysts were scrambling to try and discredit the article in Barron's." Goldman Sachs issued an all-points bulletin on eToys, priceline.com and 1-800-Flowers.com, blaring that the three had plenty of cash through the end of the year. CIBC World Markets tried to squire Interliant through the mess. How touching. But as Shabelman noted, both firms have done underwriting for the companies they gallantly defended. Before calling it a day, Shabelman fired one last take on the brouhaha describing the weekly as the mag that "took on most of the Internet sector - and won."

Another TheStreet.com reporter wondered what all the fuss was about. Hey, analysts have been cautious about these stocks for some time, David Gaffen shrugged. Like Reuters' account of the fisticuffs, Gaffen even found several analysts who stood up for Barron's. "They've got a good point," Paul Rich, trader at BT Brokerage, told Gaffen. "I promise these things didn't run up on earnings, they ran up on expectations, and sooner or later they have to deliver." Looks like "later" has arrived.

Burning Up http://interactive.wsj.com/articles/SB953335580704470544.htm (Paid search of archive required.)

Report on Net Firms' Health Hits Stocks http://cbs.marketwatch.com/archive/20000320/news/current/netbarrons.htx?source=htx/http2_mw

Internet Group Takes It on the Chin http://cbs.marketwatch.com/archive/20000320/news/current/net.htx?source=htx/http2_mw

Net Stocks Hurt by Earnings Restatement and Barron's Article http://www.thestreet.com/markets/techupdate/903710.html

Barron's List Short-Circuits Net Sector http://www.thestreet.com/markets/techupdate/903886.html

Here's a Top 10 List to Stay Off: Barron's Article Rocks Net Stocks http://www.thestreet.com/markets/marketfeatures/903637.html

Web Stocks Drop as Concerns Over Cash Burn Mount (Reuters) http://www.individualinvestor.com/news/article.asp?STORY_LIST=SF-03/20-AnN20559534@NEWS-P1&ticker=AOL&newsAOL



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