Has AdStar Inc.’s strategic transformation from software company to ad distributor failed?
The company announced last week that its shares could be de-listed from Nasdaq. But analyst Hamed Khorsand remains bullish and has kept his “buy” recommendation on the stock with a target price of $2.50. The stock was trading at about 60 cents last week.
AdStar, based in Marina del Rey, makes software that helps newspaper publishers and Web sites handle classified advertisements.
Under Nasdaq rules, a company with a stock that’s sunk below $1 has six months to get its share price above that threshold to stay on the exchange. AdStar issued a statement that it “will use its best efforts to regain compliance and fully expects that it will regain compliance prior to” the March 17 deadline.
“It all depends on whether the company has some good news for investors that pushes up the stock price and those possibilities exist,” said Khorsand, principal at BWS Financial in Tarzana.
Khorsand blames the stock’s slump it traded for $1.50 at the beginning of July on investor frustration, rather than negative changes at the company. “There has been this high expectation for demand to increase and a paradigm shift where the newspaper industry moves away from ink and paper to completely paperless transactions. That hasn’t happened,” he said.
In January, Chief Executive Officer Leslie Bernhard launched a plan to change the company from a software provider to a digital ad distribution system.
“Electronic access to those newspaper ads becomes a product offering for those seeking to reach down to local markets,” she said. “That kind of transformation is difficult and requires patience on the part of the shareholder base, but that’s where we see long-term value for shareholders.”
Bernhard’s plan targets the major Internet ad players Yahoo, Google and Monster and the telecom giants that control mobile phone advertising. “All you need is a press release confirming one of these big companies is using AdStar technology and the price would go above $1,” Khorsand said.
This isn’t the first time AdStar has skimmed the bottom of Nasdaq’s acceptable price range. In February 2005, the company received a non-compliance notice similar to last week’s letter. After five months, the company announced it had regained full listing status thanks to a price surge.
However, this downturn could prove worse than previous ones.
In a quarterly conference call on Aug. 15, Bernhard cited a convergence of two downtrends impacting the company. First, the entire newspaper industry has gone into decline. Second, the real estate sector a major source of classified ads has dried up.
“Our historic market is in complete turmoil,” Bernhard said. “This should spell great opportunity for AdStar, but the clock is ticking. Our success will hinge on our ability to stay financially healthy and focused on execution.”
On the financial side, the company reported a loss to shareholders of $439,000, or 2 cents per share, in the most recent quarter. Revenues declined slightly and the company essentially maintained its $2.5 million cash balance.
“We have no intention of raising money without a significant increase in our stock value,” said Bernhard. “That leaves us no choice but to manage our cash wisely and seek alternative ways of helping finance these (growth) activities through the participation of our customers and partners.”
