Fool Portfolio Report
Wednesday, January 29, 1997
by David Gardner
([email protected])
ALEXANDRIA, VA., January 29, 1997 -- Well, it was a pleasure to read over our Foolish Conference Call summary of Iomega yesterday, put together in one day's superhuman effort by our own Debora Tidwell. The summary itself is huge, and one need not read all of it. But I pretty much did, because when one of your top stocks does an earnings report-conference call tandem, it behooves the Foolish shareholder to pay attention.
And here's what strikes you: Iomega has grown its sales from $140 million to over $1.2 billion in two years, profitably. The company took pains in its conference call -- and I'll take the same pains here -- to point out that that growth was a faster ramp-up than Microsoft, Compaq, Apple, or AOL had from $150 to $1.2 billion. Let's do that again: Microsoft, Compaq, Apple, AOL. Faster.
Look back over computer media coverage of Iomega and you may not be surprised. The computer mags and rags, the computer shows on radio and TV, they were all over this story.
Look back over the financial media coverage of Iomega, and you'd be completely shocked. The headlines are all about controversy: accounting questions, competition that would crush the company, high short sales, "Internet chatter," the works. History will demonstrate how misguided and silly these journalists were. We need not name them; our several hundred thousand readers are well aware of their names and their rants. And as the business continues to grow into what most of us thought it might two years and 634% ago, I expect further strong returns flying in the face of what you read the writings of your favorite Wise journalist. Wisdom, thy name is
Microsoft, Compaq, Apple, AOL.
Y'know, each of those companies had to put up with a lot of garbage from the financial media, through growth periods that were amazingly rewarding to shareholders. Money, The Wall Street Journal, Business Week, the list goes on, in many cases largely ignored, talked down, or outright criticized these companies. Still do, in some cases. But the message is clear: when Fortune magazine stirs up bearish controversy about something, order the financial report and take a real hard look at a potential buy. Remember that most financial journalists are not investors: they're just journalists who were assigned the business post through quirk or whim, and have it for their main aim to stir up controversy... that's reporting, right? That's cutting edge. Forget about teaching. Forget about analyzing success... it's cool to question it, attack it. You get promotions from USA Today to Time magazine that way... it's the way the game is played.
It behooves me to include in my commentary a list (by no means complete) of the financial journalists who are smart, excellent... who instinctively understood Iomega early on. (In no way did this even suggest bullishness for the stock; we're talking straight clear-headedness here, my fellow Fools.) Unfairly leaving out many whom I can't think of off the top of my head, that list nevertheless includes Walt Mossberg, Investor's Business Daily, the Los Angeles Times business section, Individual Investor magazine, and a number of others who at one point (in most cases, quite early on, before writing about Iomega became fashionable) caught onto the story and wrote about it in such a way that you could actually visualize the company doing $1 billion sales 18 months later. Bravo.
In the end, the story that history will find amid the misguided Wisdom of the lower elements of our fourth estate is a story of a bunch of investors who were online with The Motley Fool back in early 1995, pitched together information, and figured out that the company would be HUGE. They bought the stock, held through ups and downs, and made a bunch of money. They demonstrated the new model of investment research... sharing information in a central place for the benefit of anyone who'd bother reading. And it was centered on what turned out to be perhaps the fastest growing business (to $1 billion sales) in U.S. history, hatched from market research, high technology, a lean and mean entrepreneurialism (thank you, Mr. Edwards), and a marketing effort so good it could've sold almost any product. The Zip drive somehow made many people who'd just bought a friggin' disk drive practically feel like rock stars doing so.
OK, that's mainly the past. And you probably already know all this. But it bears repeating, because the true message can occasionally get lost among misreported Reuters stories, laughably imbecilic PBS coverage, and journalists who limit their sources to short sellers. (CAUTION: This may increase short-term readership, but it destroys long-term credibility.)
So anyways... all this, and the stock down $3/8 today!
Hey, whatever. Let's look to the future. IOM is currently slated to report 83 cents in earnings per share for 1997, according to First Call. That'd be 77% growth on top of the phenomenal year last year. The company turned cash-flow positive in the fourth quarter (one quarter ahead of time), showed 6.5% net profit margins, blew out overseas business to 33% of the overall, and withered its competition. We continue to feel very good about Iomega stock demonstrating.
It's not that I don't think there aren't obstacles. Profitability is an ongoing challenge. Iomega is always in danger of being the computer hardware company with big sales and thin margins. I sometimes worry that the company also won't manage to grow itself to $2 billion sales quickly enough, possibly unable to get the Zip drive down to the planned-for $99 price tag. And competition, not from the old will-o'-wisps (I continue to discount Compaq, for instance), but from totally new technologies, will continue to loom. All those, but I believe our company is well-managed, and has demonstrated that almost every step of the way. The 634% return makes that quite evident.
It's helpful from time to time to mention a few other things, to close. We don't want you to buy IOM stock. In fact, I'd ask you not even to consider it if you haven't followed the company or the business. And at Fool HQ, we're as likely to make a joke about Iomega fanatics as we are to support them... for us, it's just one stock in our portfolio... for some people, it seems an almost pathological addiction. It's been one heck of a business, though.
The Fool Portfolio put up a decent day, rising 0.77%. AOL reached a settlement with frustrated users represented by attorneys general in 30+ states. This includes refunds for those who were online less than 15 monthly hours. More info from this story at USA Today's Web site. The uncertainty that's now been resolved is often a pleasing feeling for Wall Street... AOL shares were bid up two bucks.
Chevron and Trois Com also caught a little bit of that $1+ magic, further
propelling the Fool Port. See yooze tomorrow, same Fool time, same Fool
channel.
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TODAY'S NUMBERS
Stock Change Bid -------------------- AOL +2 37.25 T + 1/4 38.88 ATCT - 3/8 11.88 CHV +1 5/8 66.63 GM + 1/8 60.88 IOM - 3/8 18.50 KLAC + 1/8 39.25 LU + 5/8 54.13 MMM + 3/4 84.25 NCR + 1/2 39.88 COMS +1 1/2 62.63
Day Month Year History FOOL +0.77% 2.88% 2.88% 174.57% S&P 500 +0.98% 4.29% 4.29% 68.52% NASDAQ: +0.06% 4.97% 4.97% 88.17% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 18.50 634.43% 8/5/94 680 AmOnline 7.27 37.25 412.37% 8/13/96 250 3Com Corp. 46.86 62.63 33.64% 8/11/95 125 Chevron 50.28 66.63 32.50% 8/12/96 110 Minn M&M 65.68 84.25 28.28% 1/2/97 8 NCR 33.63 39.88 18.59% 8/12/96 280 Gen'l Moto 51.97 60.88 17.13% 10/1/96 42 LucentTech 47.62 54.13 13.41% 8/12/96 130 AT&T 39.58 38.88 -2.09% 8/24/95 130 KLA Instrm 44.71 39.25 -12.21% 10/22/96 600 ATC Comm. 22.94 11.88 -48.23% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 36930.00 $31866.87 8/5/94 680 AmOnline 4945.56 25330.00 $20375.44 8/13/96 250 3Com Corp. 11714.99 15656.25 $3941.26 8/12/96 280 Gen'l Moto 14552.49 17045.00 $2492.51 8/12/96 110 Minn M&M 7224.44 9267.50 $2043.06 8/11/95 125 Chevron 6285.61 8328.13 $2042.52 10/1/96 42 LucentTech 1999.88 2268.00 $268.12 1/2/97 8 NCR 269.00 319.00 $50.00 8/12/96 130 AT&T 5145.11 5037.50 -$107.61 8/24/95 130 KLA Instrm 5812.49 5102.50 -$709.99 10/22/96 600 ATC Comm. 13761.50 7125.00 -$6636.50 CASH $4600.04 TOTAL $137285.42 Transmitted: 1/29/97