If there’s one thing the year 2000 taught us, it’s that bubbles burst. Laguna Hills-based Interchange Corp. just got a refresher course.
That’s how it seems after the Internet advertising company reported disappointing results last week.
The online advertising company posted sales of $6 million for the fourth quarter, up 115% from a year earlier. Operating profit fell 12% to $413,000.
Analysts had expected nearly $7 million in sales for the quarter. And they were further spooked by Interchange’s projection of lower-than-expected profits for the first quarter and the year.
“In 2005 the company is making significant investments in research and development, as well as sales and marketing and expects to realize the benefits of these investments in future periods,” Interchange said in a statement about its profit outlook.
The result was punishing for a stock that has brought back memories of the go-go days with its wild surges. The day after Interchange’s conference call, investors took a third out of the company’s market value, which stood at about $100 million.
After Interchange’s public offering last fall, the company’s shares surged, giving it a market value of more than $200 million around late November.
Last week’s pop probably could have been predicted.
A quick look at the most basic of stats,the price-earnings ratio,shows a forward P/E of 55 and a trailing P/E of 190. Expensive.
Then there are the shorts. The percentage of Interchange shares held by short-sellers,investors betting on a drop in the company’s share price,is sizable at 30%.
That means nearly a third of Interchange’s shares are hedged against the company’s stock price going up. Some of those short-sellers probably made out last week.
Compare that to other OC companies. Santa Ana-based MSC.Software Corp., which has had its ups and downs on Wall Street, only has about 7% of shares in short positions. Irvine chipmaker Broadcom Corp., OC’s most valuable company on Wall Street, just has about 5% of shares short.
Interchange’s large number of shorted shares also might explain part of the company’s big upward surges on Wall Street.
A recent BusinessWeek story took a look at an obscure trading strategy called naked shorting, the effects of which actually drive up company stocks.
This happens when brokers, who normally have to have shares available to lend to short sellers before a trade, execute the sale before they have the shares.
A move called a short squeeze is in play on stocks such as Interchange’s. This is where short-sellers buy large amounts of stock, driving up the shares, forcing short-sellers to cover their positions.
A new Securities and Exchange Commission rule requires the exchanges to post a list of stocks for which brokers haven’t been able to deliver large blocks of shares quickly.
According to BusinessWeek, the rule is prompting brokers to close positions in about 13 trading days.
Ingram Buoys Tech
It’s always interesting to see earnings from Ingram Micro Inc.
The Santa Ana-based distributor of technology computer products,the industry’s largest,is a proxy for the technology sector, gauging how fast computer products are flying around the globe.
The most recent word says that they’re flying faster.
The catalysts? North America and Europe, the two largest tech markets.
“In the fourth quarter, we posted the highest operating margins in four years and exceeded our guidance range for sales and net income, said Kent Foster, Ingram’s chief executive.
Ingram posted a 10% gain in quarterly sales to $7.5 billion, versus a year earlier. About $400 million in sales come from the company’s acquisition of Australian distributor Tech Pacific, which closed last year.
The company said its operating profit jumped 34% in the quarter to $108.7 million, compared to a year ago.
Foster said Ingram’s outlook is good, noting strong demand with softness in some markets.
“We expect to maintain or enhance market share through strategic initiatives to spur both sales and income, while expanding our reach into new technologies and markets,” he said.
For the first quarter, Ingram expects sales of $7 billion to $7.2 billion, with net income $47 million to $50 million.
Broadcom First
Broadcom said late last month it plans to buy as much as $250 million of the company’s common stock in the next year.
Broadcom’s market value was $10.4 billion at recent check.
The move would mark the first time the chipmaker has approved a stock buyback plan. When companies use cash to buy shares it often benefits investors. As the pool of shares decreases, earnings per share go up.
Finding money to buy shares isn’t an issue: Broadcom had $1.2 billion in cash at the end of 2004.
“The company’s management and board of directors regularly evaluate the appropriate uses of cash, and they felt that a share repurchase would directly benefit Broadcom’s shareholders in a multi-step effort to reduce option dilution,” spokesman Bill Blanning said.
With Broadcom’s employee growth and acquisitions in the past few years, the chipmaker has awarded a lot of stock options. As those options have vested, the company’s number of shares outstanding has grown.
