I spent a lot of time in the late 1990s writing about America Online Inc. after the Internet portal company opened a customer service center in Jacksonville to handle its ever-growing subscriber base.
Basically, I kept writing that the stock couldn’t possibly continue its rapid ascent. But I continued to be wrong.
When I finally gave up trying to predict the future of AOL’s stock in 1999, I pointed out that a $10,000 investment when the company opened its Jacksonville center in 1995 would have been worth more than $450,000 four years later.
AOL’s stock’s was trading at about 500 times its earnings then, a lofty multiple even during the Internet bubble of the 1990s. But you could understand why it was such a hot stock.
“AOL is the dominant company involved in the Internet, so AOL has become a mandatory stock for many portfolios. As a result, demand for AOL stock continues to be hot and the price just keeps going up,” I wrote in a column in The Florida Times-Union.
But I stuck to my belief that the ride wouldn’t last forever.
“One of these days, everyone who needs to own AOL stock will have it and demand will dry up. Just don’t ask me to predict when that’s going to happen,” I wrote in 1999.
Eventually, I was proven right. AOL merged with Time Warner Inc. in 2001 in a deal that was supposed to transform the entire media business, but it didn’t.
AOL’s subscriber base began to drop and the company closed its Jacksonville center, which once employed 1,800 people, in 2006.
Time Warner spun off the business as a separate public company called AOL Inc. in 2009 and other than its ownership of the Huffington Post news websites, you don’t hear much about AOL anymore.
So why am I writing about this now? Obviously, I couldn’t help thinking about AOL when Facebook Inc. went public last week.
Facebook is obviously now the dominant Internet company in the world with its 900 million users. But can you really say for certain it will last forever? Even if it does last, a lot of people are questioning its ability to grow revenue and earnings.
The Wall Street Journal reported last week that General Motors Co. plans to stop advertising on Facebook because its ads didn’t seem to be having an impact on sales.
While GM only spent about $10 million last year in Facebook advertising, the company is the third-largest U.S. advertiser after Procter & Gamble Co. and AT&T, the Journal said.
So will other companies come to the same conclusion about the effectiveness of Facebook advertising?
Besides that question, another issue is the growing use of mobile devices to access Facebook. The company hasn’t come up with a plan to monetize that usage and if mobile devices are the future, how will that affect Facebook’s finances?
A couple of analysts have published projections that Facebook will earn about 50 cents per share over the next 12 months. So its initial public offering price of $38 was 76 times projected earnings, compared with an earnings multiple of about 15 for the average S&P 500 stock.
The trading activity on Friday after the IPO shows that a lot of other people are skeptical about Facebook.
After predictions on Thursday that all the excitement about the IPO might push the stock above $50 when trading began Friday, the stock opened at a disappointing $42.05.
There was more disappointment later in the day as the stock fell to near its IPO price. It closed at $38.23. Again, I can’t predict the future so I don’t know if Facebook will be a financial success. I realize Facebook is a different animal than AOL. But Internet history teaches us to be cautious.
Stein Mart happy with new sales strategy
Stein Mart Inc. last week reported first-quarter earnings of 27 cents a share, down from adjusted earnings of 32 cents last year, with flat sales. But interim CEO Jay Stein said he is happy with the company’s revamped sales strategy of reducing coupons and focusing instead on everyday low prices.
The Jacksonville-based fashion retailer said 22 percent of first-quarter sales were associated with coupons, down from 33 percent in the first quarter last year.
“We’re encouraged by the reduction in coupon sales this quarter and our ability to offset those reductions with regular price sales. This is an indication that we are headed in the right direction to get us back to the everyday low price value model that made our company so successful,” Stein said in a conference call with analysts.
Avondale Partners analyst Mark Montagna said in a research note that the impact of the new strategy on overall sales was “far less than we expected.”
“It is impressive to see Stein Mart is seeing minimal negative impact from moving back to everyday low pricing. That is because Stein Mart only strayed for 18 to 24 months from its roots as an EDLP retailer,” Montagna said.
Stein also said the company has been spending too much on advertising for 12-hour sales and the company plans to cut back from nine of those a year to six.
“We created a monster,” Stein said about the high number of 12-hour sales, adding that they cost the company “a bloody fortune.”
Stein, who also is the company’s chairman and largest stockholder, has been interim CEO since David Stovall retired in September. Stein said the search for a permanent CEO is continuing, but he gave no timetable.
“Finding the right person to lead our company remains a key priority, and we are appropriately spending a great deal of time and effort in that regard,” he said.
Montagna maintains a “market perform” rating on the stock, and SunTrust Robinson Humphrey analyst Robin Murchison said she is maintaining her “neutral” rating after the first-quarter report.
“While the company’s strong financial position and relatively cheap valuation remain positives and should help mitigate downside risk, we choose to remain on the sidelines pending better traction in top-line results,” Murchison said in her research note.
Still waiting on ParkerVision
ParkerVision Inc. last week reported a first-quarter net loss of $4.1 million, or 6 cents a share, with no revenue. CEO Jeff Parker did not give any new details during his quarterly conference call about when the Jacksonville-based company might see revenue from its wireless radio technology.
Strangely enough, Parker did not receive any questions from investors as he normally does during the call. Parker surmised that investors didn’t have any new questions because it had only been about six weeks since ParkerVision’s year-end conference call.
Fortegra sees slight decrease in earnings
Fortegra Financial Corp. reported adjusted first-quarter earnings of $3.7 million, or 18 cents per diluted share, down from $4.3 million, or 20 cents a share, the previous year.
But the Jacksonville-based insurance services company grew revenue by 7.3 percent in the quarter to $58.7 million.
William Blair & Co. analyst Adam Klauber called it a “solid” quarter in a research note, but he maintains a “market perform” rating on the stock.
“The stock has good long-term potential, although present valuation suggests only moderate near-term upside,” Klauber said.
“Longer term, the valuation has the potential to expand if the company can consistently demonstrate the ability to grow and execute on margins,” he said.
Global Axcess reports first-quarter loss
Global Axcess Corp. reported a first-quarter net loss of $291,308, or 1 cent per share. But the Jacksonville-based company, which operates automated teller machine and DVD kiosk networks, said revenue rose 4.4 percent to $8.3 million, which was higher than its forecast of $8 million. The company has no analyst coverage.
Global Axcess is projecting second-quarter revenue to reach $8.4 million and its adjusted earnings before interest, taxes, depreciation and amortization to reach $1 million, up from $925,000 in the first quarter.
Florida East Coast Holdings reports loss
Florida East Coast Holdings Corp. recorded a first-quarter net loss of $4.5 million, according to a report filed with the SEC.
The Jacksonville-based company, which operates a 351-mile railroad from Jacksonville to Miami, reported revenue rose 11 percent to $57.4 million and operating income rose 38 percent to $12.1 million. But interest expenses caused the company to record a net loss.
‘Terrific start’ for local Pizza Huts
NPC International Inc. CEO Jim Schwartz said in the company’s first-quarter news release that its acquisition of 36 Pizza Hut restaurants in the Jacksonville market “is off to a terrific start.” The company did not give further details.
Kansas-based NPC says it is the world’s largest Pizza Hut franchisee with 1,189 restaurants in 28 states. It bought the 36 local restaurants from Pizza Hut Inc. in February for $19.3 million.
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