|
|
|
Tuesday, February 3, 1998
8x8 Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGHT)") else Response.Write("(Nasdaq: EGHT)") end if %>
Phone: 408-727-1885
Website: http://www.8x8.com
Price (2/2/98): $6 9/16
HOW DID IT FIND TROUBLE?
Who took a 2x4 to 8x8? For the video communications company, the December quarter results didn't foretell a beating. Sales more than tripled, and with the analysts expecting a loss for the quarter, 8x8 reported a surprising profit. The company looked awfully good in the rear-view mirror.
Yet the future was not as cheery. The company announced that videophone system sales for the current March quarter were expected to be soft. Shipments to original equipment manufacturers (OEM) had been heavy in the December period and the sequential weakness was not what investors expected. The bigger shock was that CEO Joe Parkinson was leaving the company.
Say it ain't so, Joe! With no clear explanation for Parkinson's departure, and a market skeptical of any revenue slowdown, shareholders quickly disconnected from the company. For a company whose moniker implied multiplication, the irony was that the share price was divided -- in two.
BUSINESS DESCRIPTION
Remember the Jetsons, where Mr. Spacely would dial up George Jetson on a videophone to fire him? While the technology has made great strides in the high-end teleconferencing segment, it has failed in the consumer market. The picture quality has been too poor, and the price tag has been too high.
8x8's ViaTV product line is looking to change that. The California company makes the systems, which in its most basic format requires only a TV and a touch-tone telephone to operate. The company also provides its videoconferencing chip and software for use in other systems, including an overseas venture with Deutsche Telecom and NTT for ISDN teleconferencing systems being sold in Germany and Japan.
FINANCIAL FACTS
Income Statement
12-month sales: $42.1 million
12-month income: $0.8 million
9-month EPS: $0.24*
Profit Margin: 1.9%
Market Cap: $110.9 million
(*Based on 9-month numbers due to lack of data prior to public offering.)
Balance Sheet
Cash: $33.2 million
Current Assets: $47.5 million
Current Liabilities: $13.1 million
Long-term Debt: None
Ratios
Price-to-earnings: 20.5*
Price-to-sales: 2.9
(*Based on annualized 9-month EPS)
HOW COULD YOU HAVE SEEN IT COMING?
Pieces of 8x8? As the volatile trading history of competitor C-Phone <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CFON)") else Response.Write("(Nasdaq: CFON)") end if %> has shown, investing in a company that could potentially revolutionize the telecommunications industry is not without its peaks and valleys.
Then again, 8x8 is no C-Phone. Sales at 8x8 for the last quarter were 30 times higher than that of the C-Phone. 8x8 was also profitable, while C-Phone lost money. While that gave the company some stability, in a niche that has often overpromised and underdelivered anything short of sequential growth was going to be interpreted as another home-based videophone system heading towards obsolescence.
CEO Parkinson's defection enhanced that perception. Up to the time when the series of announcements were made on January 19, all signs pointed to continued robust operations. New retail outlets like OfficeMax were signing on -- joining strong distribution channels that included CompUSA and Staples.
C-Phone's jagged price swings might have warned 8x8 shareholders of potential gyrations, but the share demise that followed on Jan. 20 was clearly not visible until the news was out and the stock price already at a fraction of its October highs.
WHERE TO FROM HERE?
A recent initial public offering with a debut this past summer, 8x8 is actually in an enviable position right now. The company is debt free and cash rich to the tune of $3 a share.
While the company may be hard-pressed to match its December quarter profitability, with March earnings estimates calling for a loss of $0.03 a share even before the announcement, the target still seems attainable. The projections for the December quarter were for a loss of $0.14 a share, far from the penny a share in profit the company ultimately earned. In theory, as long as the sales drop-off is not too severe, the company has a shot at meeting those estimates and marching ahead towards the $0.54 a share profit that was projected for the fiscal year beginning in April.
With more outlets, a QVC stint over the holidays, and a favorable product review in the December issue of Smart Money, ViaTV seems to be far from dead, despite what Parkinson's departure and the depressed share price may indicate.
While the practicality of home-based videophones may always be in question -- calling me in the morning may be hazardous to the eyes -- there is still a lingering romanticism with images of distant grandparents calling their grandchildren on their birthday, or a traveling mother reading a bedtime story to her sleepy son a few time zones away.
8x8 has come as close to leaping the hurdles of affordability and picture quality as its predecessors. Will it succeed? You make the call.
-Rick Aristotle Munarriz
([email protected])
Check out the Daily Trouble Message Board!
|