Accounting Issues Dog Homestore.com.Read Homestore.com's press releases an things look pretty good for the Westlake Village-based Internet real estate "Internet Real Estate" is a popular buzzword that has two different definitions. First, "Internet Real Estate" can be used to describe the use of the Internet to promote, advertise, and view commercial and residential real estate for lease or purchase. services campany. It reported revenues of $129 million in the second quarter, up from $72 million in the like period a year ago. "Few companies in today's environment are generating that kind of top-line growth," said Homestore.com Chief Executive Stuart Wolff. But once you get past the top line, things get murkier. Homestore.com is AOL's exclusive provider of apartment and residential real estate listings in an era when home sales are one of the few industries that still have a healthy pulse. It survived Justice Department investigation into anti-competitive practices Anti-competitive practices are business or government practices that prevent and/or reduce competition in a market (see restraint of trade). Anti-competitive practices can include: But depending on how you're counting, the second quarter results either generated a net income of $14.5 million, about 13 cents a share -- or a net loss of $72 million, about 31 cents a share. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma reporting The $72 million net loss (down from a loss of $98.2 million in the same quarter a year earlier) is derived using generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ). The $14.5 million profit is Homestore.com's pro forma earnings pro forma earnings Income not necessarily calculated in accordance with generally accepted accounting principles. For example, a company might report pro forma earnings that exclude depreciation expense and nonrecurring expenses such as restructuring costs. after $86.5 million in charges are excluded. While any number of items are considered pro forma expenses these days, in Homestore.com's case it means stock-based charges, amortization of intangible assets, acquisition-related charges and write-downs on investments. Wolff would not address pro-forma numbers during the brief interview. Several hours later Gary Gerdemann, a spokesman for the company, e-mailed a note to the Business Journal that said: "I'm sorry to report that I can't make anyone else available for an interview on this matter, but I do appreciate your interest in Homestore." Homestore.com is not the only company these days reporting pro forma earnings. And $86.5 million is not even close to the largest gap between the two kinds of figures being reported. In its most recent quarter, Qualcomm hc. reported pro forma earnings of $174.3 million and a GAAP net loss of $274.7 million, a difference of $449 million. "It's the way it is at this point," said Shawn Milne Shawn Milne (born 9 November 1981) is a professional road bicycle racer from the Gloucester, Massachusetts, United States. In 2007, he rides in events on the USA Cycling National Racing Calendar and UCI Continental Circuits for Health Net Pro Cycling Team Presented by Maxxis. , an analyst with Wit SoundView. "Look at a hundred other tech companies, it's the same thing. I would suggest you look at cash flow. That's the most important thing." With so many tech companies reporting pro forma earnings that paint a far more optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op picture than GAAP results do, analysts have begun paying more attention to other elements of earnings reports. At the end of the second quarter, Homestore.com's balance sheet reported $175.6 million in cash on hand. It also reported $90 million as restricted cash in the form of a letter of credit AOL (A division of Time Warner, Inc., New York, NY, www.aol.com) The world's largest online information service with access to the Internet, e-mail, chat rooms and a variety of databases and services. is holding. Among the $86.5 million in charges Homestore.com reported is $9.3 million it amortizes each quarter for the marketing deal it struck with AOL in April 2000. In return for the exclusive five-year agreement, Homestore.com gave AOL $20 million in cash and 3.9 million shares of stock. Budget deal It also guaranteed AOL higher stock prices at certain future points than it is now trading at. For instance, if Homestore.com is not trading at $65.64 by July 2003, it must pay AOL the difference for 60 percent of those 3.9 million shares. Last week, it was around $17. The letter of credit reflected in the $90 million of restricted cash on its balance sheet is AOL's guarantee. Homestore.com has a similar agreement with Budget Truck Group. It gave Budget 1.1 million shares in February 2000 (valued at the time at $70 million) in return for a marketing campaign that includes Homestore's logo on the sides of 45,000 Budget and Ryder rental trucks. Those shares must be worth $64.50 by March 2002 or Homestore.com owes the difference. But Homestore reportedly has questioned whether Budget is moving quickly enough to get the logo on the trucks. In a report he prepared on Homestore.com, Henry Blodget Henry Blodget (born 1966) is a former securities analyst who was senior Internet analyst for Merrill Lynch during the dot-com bubble. Blodget received a Bachelor of Arts degree from Yale University and began his career as a freelance journalist and was a proofreader for of Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. said that while using equity to pay for operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. like marketing is certainly appropriate, reporting it as pro forma expenses makes it difficult to analyze the company's value. "This is not a disclosure issue," Blodget said. "It is, however, a valuation issue." Homestore.com The firm's stock price has plummeted. Aug. 31, 2000 $54.19 Sept. 4, 2001 $17.00 Note: Table made from line graph |
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