Despite its Wall Street woes, United Online competitive.WATCHING the Internet service market is little like playing a game of telephone. By the time word of a new price plan gets around, it starts to sound like all the other players are doomed. Lately, it has begun to look like United Online Inc. is caught in just such a game. The company's stellar earnings and revenue results don't seem to matter to Wall Street, which has shunned the stock ever since 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. announced it would introduce a new, lower cost service and broadband providers began offering discounted prices on their Internet services as well. Since the price-cutting began last fall, shares in United Online have lost nearly 40 percent of their value, falling from a high of nearly $28 in September to the mid-teen range recently. On Wednesday, Dec. 31, shares in United Online closed at $16.79 per share. "You've seen the stock take its lumps," said Peter Mirsky, digital commerce analyst with Oppenheimer & Co. in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , which does not hold a position or do any banking business with United Online. "It sort of ignores the fact that even the big competitors, while they can play in the value price space, they are somewhat hamstrung ham·string n. 1. Any of the tendons at the rear hollow of the human knee. 2. or hamstrings The hamstring muscle. 3. The large tendon in the back of the hock of a quadruped. tr.v. by their legacy core premium price product." United Online, which was formed in 2001 by the merger of Juno Online and NetZero, carved carve v. carved, carv·ing, carves v.tr. 1. a. To divide into pieces by cutting; slice: carved a roast. b. out a niche Mirsky describes as the Wal-Mart of the Internet, offering a no-frills dial-up service at $9.95 a month. The discounted pricing helped the company to compete against far larger, entrenched en·trench also in·trench v. en·trenched, en·trench·ing, en·trench·es v.tr. 1. To provide with a trench, especially for the purpose of fortifying or defending. 2. players like AOL and Earthlink, which were charging an additional $10 or more per month for their services. The subscriber base at Westlake Village-based United Online has been growing exponentially ex·po·nen·tial adj. 1. Of or relating to an exponent. 2. Mathematics a. Containing, involving, or expressed as an exponent. b. as a result, up 47 percent to 2.7 million subscribers as of the quarter ended Sept. 30, compared to the same period last year. For the same period in September, the company's fiscal first quarter, United Online recorded net income of $8.9 million or $0.13 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, (after adjusting for a three-for-two stock split in November) on revenues of $88.8 million. That compares with earnings of $1.5 million or $0.02 per share on revenues of $58.1 million for the like period last year. In its guidance for the quarter ended December 30, 2003, United Online projected operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. of $13.4 million to $14.4 million on revenues ranging betWeen $93 million and $95 million. That would compare with operating income before taxes of $5.2 million on revenues of $65.8 million for the same quarter last year. Higher-sPeed dial-up The recent growth, in part, has come from a new service, so-called "accelerated" dial-up, a speedier version offered at about $5 above the basic price, which now accounts for about 15 percent of United Online's subscribers. But even as United Online has increased its penetration, rivals have moved into lower-priced alternatives. Broadband companies including SBC (1) (SBC Communications Inc., San Antonio, TX, www.sbc.com) A large, national telecommunications company that grew from a multitude of local and regional companies, including Southwestern Bell, Pacific Bell and Nevada Bell, into a single, unified brand by 2002. Communications Inc. and BellSouth Corp, are promoting cut-rate services and AOL announced plans to offer a $9.95 service dial-up service. That has led to the jitters jitters 'Butterflies' Psychology An episode of nervousness or anxiety that often precedes a public event; jitters is a type of performance anxiety which may affect actors in a stage production–stage fright or soloist musicians; it may respond to anxiolytics on Wall Street. "I would call it a perception issue," said Mirsky. "Their numbers have been very strong." Many say the competition is more likely to impact premium dial-up services An information service on demand. The term was popular when analog modems were the only way to connect to a remote system. See dial-up. , not United Online, which never really competed with broadband and still can go toe-to-toe with competitors on basic dial-up, a theory backed up by the company's performance. "We have been getting a hail storm of competition, and our business went up almost 50 percent in paid subscribers," said Mark R. Goldston, United Online's chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "And look at our profitability. So for me it was astonishing a·ston·ish tr.v. as·ton·ished, as·ton·ish·ing, as·ton·ish·es To fill with sudden wonder or amazement. See Synonyms at surprise. that our stock would have taken the hits it took, and it was based, in my view, on inane announcements." That the stock price has remained depressed may be due to nothing more than a rash of profit taking by Wall Street, Goldston added, particularly since the company's stock has been one of the winners on the street. Despite the recent declines, the company's stock price is still trading at twice what it traded at last January. "I think there are a lot of people who made a lot of money during the 12-month period on United Online stock, who said, 'hey, this has been great. I'm going to take my winnings and lock them in,'" Goldston said. "It doesn't mean that's the entire case, but there's a strong argument to be made for that scenario." United Online Inc. YEAR (June 30) 2003 2002 Revenue (millions) $277.3 $167.5 Operating Expenses (millions) 255.6 221.5 Operating Income (millions) 21.7 (53.9) Net Income (millions) 27.8 (47.8) Earnings Per Share * $0.41 ($0.90) * EPS adjusted for three-for-two stock split on Nov. 3, 2003. Business: Internet Service Provider Headquarters: Westlake Village CEO: Mark R. Goldston Market Cap: $1,094.2 million Dividend Yield: N/A ** Total Liabilities: $63.8 million P/E: 25.2 Long-Term Debt: $0 ** United Online does not pay dividends. |
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