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Smartalk

Smartalk/8″/LK1st/mark2nd

By SARA FISHER

Staff Reporter

SmarTalk TeleServices Inc., named by the Business Journal as L.A. County’s fastest-growing public company in 1997, has hit some speed bumps.

The company’s stock price has plummeted almost 44 percent over the past week and a half, plunging from $31.94 a share at the end of March to less than $18 in the first week of April.

By market close on April 9, it had rebounded somewhat, to $21.13.

The L.A.-based company, which makes prepaid phone cards, announced on April 1 that it anticipated a first-quarter loss of 5 cents per share. The announcement surprised analysts tracking the company, who had previously estimated earnings of 5 cents per share.

The day after the announcement, shares immediately fell from $31.13 to $22.50 and continued to fall gradually for the next several days.

“Our revenue expectations were not met primarily due to delays in launching new means of distributing our phone cards and in launching our prepaid cellular phone product,” said William Kahn, vice president of corporate communications. “Both initiatives are moving forward, just at a slower pace. We now expect to see revenue in the third quarter of this year rather than the first.”

Kahn also blamed the loss on costs associated with the company’s overseas expansion, and to a lesser degree, the classification of a recently acquired call center as a discontinued operation.

SmarTalk stock was dealt a further blow by an article published on an investment Web site that reported rumors of inconsistent accounting practices at the company.

Kahn denied the charges, characterizing the article as more inaccurate than the supposed accounting practices. A CS First Boston analyst issued a research note on April 8 refuting the rumors, stating that they were spread by short sellers.

Despite the tumble, analysts from CS First Boston, Donaldson Lufkin & Jenrette Securities Corp. and Salomon Smith Barney released positive assessments of SmarTalk and continued buy recommendations for its stock.

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