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It's a toxic combination--lower-than-expected subscriber numbers and a high cash burn rate that may drain company coffers by mid-year.
That was enough to plunge share prices for high-speed wireless provider Metricom Inc. after a gloomy fourth-quarter earnings report Feb. 8.
The company, which debuted its Ricochet high-speed wireless in 13 U.S. markets, reported a net loss of $114.4 million. That compares to the $56.3 million in red ink registered for the same period in 1999. Similarly, revenue slid from $4.9 million in the fourth quarter 1999 to $2.4 million in 2000.
With a little more than $526 million in cash and investments, the company can continue to operate only through the second quarter of this year unless it gets an investment infusion. Until then, the company will halt planned deployment in new markets and concentrate on its existing business.
The high cash burn rate stems from capital costs as Metricom builds out its network of local high-speed wireless cells delivering service at 128 kilobits per second (kbps) downstream. Capital expenditures totaled $201.6 million in the quarter, compared to just $27.4 million in 1999.
But at the same time, subscribers haven't exactly flocked to the service. In 1999, the company had some 29,700 subscribers using a narrowband 28.8 kbps service. In 2000, while 13 markets were either upgraded or debuted with 128 kbps service, the total subscriber base stood at 34,000. Of that, 21,800 were narrowband users and only 12,200 opted for the128 kbps service.
Strong reaction from the media and investment community following the earnings announcement and a 44 percent stock plummet prompted Metricom to do a little backpedaling the next day. While the company would not provide executives for comment, it did issue a clarification that Ricochet service was far from shutting down.
"While we clearly need additional funding, we did not intend to give the impression that we are currently in the process of 'shutting down' Ricochet," according to the statement.
The company did go on to state it was in discussions with potential funding sources, scaling back new building and operating costs and working to gain more customers. It recently debuted service in Los Angeles and is fielding "aggressive marketing campaigns" with network providers WorldCom Inc. in Atlanta and GoAmerica Communications Corp. in Dallas.
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