On the eve of Independence Day, free Internet Service Provider NetZero Inc. became one of the latest local Internet companies to be flagged by the Nasdaq National Market for failing to meet the minimum $1 bid price requirement.
In an effort to kick-start some buzz, the so-called “Defender of the Free World,” as NetZero was known in its past promotions, shipped out heavy, silver-plated mice to some members of the media with the hope of attracting them to the newly launched Platinum service.
Platinum, established to help reduce the money-losing company’s reliance on online advertising, has met with some success. The service won over more than 100,000 users in the first six weeks following its introduction in March and, at $9.95 per month, is priced attractively below rivals America Online and Microsoft Corp.’s MSN.
Investors nevertheless have not been impressed with the company lately.
Despite drawing a flood of new subscribers, Platinum’s revenue has been disappointing. The $150 million in cash on NetZero’s balance sheet has failed to elicit investor enthusiasm and the company’s recently announced merger plans with New York-based Juno Online Services were met with a yawn.
If the deal with Juno is consummated, the newly formed company to be called United Online will create the nation’s second largest ISP with 7 million users.
Still, investors are not betting on its chances of success against powerhouse AOL, which has some 30 million paying customers. NetZero stock has been trading in the 80 cent range for months.
Profits seem elusive for NetZero, silver mouse or not. It reported a net loss of $91.4 million (80 cents per diluted share) for the first quarter ended March 3, compared with a loss of $24.9 million (27 cents) in the like year-earlier quarter. Its first quarter revenues were $12.8 million, down from $16 million in the previous quarter and $16.9 million in the like year-earlier quarter.
While NetZero chief executive Mark Goldston has said in interviews that he expects advertising revenues to pick up for the merged companies, he and president Ronald Burr have been unloading shares recently. Since last May, the executives have together sold, or indicated an intention to sell, more than 360,000 of their shares.
Another major shareholder to back out of NetZero recently was CPQ Holdings Inc., the investment arm of Compaq Computer Corp. According to SEC filings, CPQ sold 1.5 million shares in the first six months of the year, reducing its stake to 5.5 million common shares, a 4.41 percent interest.
Resurgent Roundtable
On the heels of the Irvine-based Tech Coast Alliance launch in Long Beach last month, the Digital Coast Roundtable has surfaced after months of silence. The L.A.-based nonprofit, which was formed in the glory days of 1998 to support emerging technology companies in Southern California, announced last week that it had restructured and elected a new board.
Everyone’s restructuring in the tech sector, so why not the sector’s networking and advocacy groups?
The new team includes Kevin Wall, founding partner of Shelter Capital Partners, who will serve as chairman. Scott Tolleson, chairman of Media.Net, will become chief financial officer and Alan Kiros, partner with Weissman, Wolf, Bergman, Coleman & Silverman LLP, will become the group’s secretary.
Others elected to the board include Robert Dowling, publisher of The Hollywood Reporter; Jon Goodman, executive director of EC2, the Annenberg Incubator Project at USC; and Gary Mendoza, partner with Riordan & McKinzie.
The often cliquish groups in the local tech sector would do well to cling to the members of Digital Coast Roundtable. According to its Web site, member companies include top venture capital firms like Palomar Ventures, Clarity Partners and Constellation Ventures as well as some powerhouse companies like Electronic Arts, Sun Microsystems, Liberty Digital and L.A.’s largest law firm O’Melveny & Myers.
No events have been announced yet, but Wall said the group is developing seminars and workshops with Los Angeles Unified School District’s New Media Academies to help integrate art and technology into school programs. It is also developing a New Media Atlas to provide information about technology trends and growth between Santa Barbara and San Diego.
Another Skills Set
The mergers and acquisition market may be in a funk at the moment, but for many technology companies finding an ally, partner or buyer is tantamount to survival. That requires keen negotiation skills.
Run by the Negotiation Skills Co., a Massachusetts-based executive training firm, the site includes advice sections on M & As;, on “dealing with difficult people,” on emotions and one titled “I did the work but they haven’t paid me.”
X-Boss
Internal troubles continue to plague Xdrive Technologies Inc., which lost chief executive Paul Gigg last week. Gigg was brought in late last year to help the Santa Monica-based online storage company restructure.
Besides losing its chief, Xdrive also seems to be losing its identity. It has renamed itself, shifted its focus from online storage to enterprise software sales and has referred to itself variously as an infrastructure provider to, most recently, an “Internet information management company.”
Xdrive, which has been hanging its hat on a recent deal with Microsoft, recently acquired San Jose-based Yopa, a small company that provides so-called “push technology,” which moves any voice or text information to any wired or wireless device. That all-stock deal was worth more than $20 million.
Staff reporter Hans Ibold can be reached at (323) 549-5225 ext. 230 or at [email protected].
