From: Adam Rifkin -4K (adam@XeNT.ics.uci.edu)
Date: Wed May 03 2000 - 20:54:39 PDT
Why do I love Xcelera.com's story so much? Jon Markman from MSN
Investor responds to Christopher Byron from MSNBC. Any bets as to when
Michael Kinsley from MSN Slate will join the fray? With all these
journalists on their side, why doesn't MS have a better rep?
> My response to Xcelera article
> Now a response to a column ("Vik's vapor stock") published at our sister
> publication, MSNBC, about Xcelera.com (XLA, news, msgs), one of my
> high-risk 100x10y picks. I don't mind taking potshots from other
> writers. Debate is where great ideas are tempered, broken and rebuilt.
> And I'm not a cheerleader for this company or any other. If its managers
> fail to execute on their plan, then I'll call them on it and advise
> readers to bail out. But I think this piece did a disservice to
> investors, and here's why.
> * The column suggests there is something nefarious about keeping a
> company domiciled offshore in a tax haven like the Cayman Islands. Not
> true. Taxes are an expense that managers must minimize. Any firm focused
> on overseas investments that can benefit from an offshore headquarters
> should do so. Three of the many large companies with headquarters
> offshore in Bermuda are Global Crossing (GBLX, news, msgs), insurance
> holding company XL Capital (XL, news, msgs) and Tyco International (TYC,
> news, msgs).
> * The column also suggests there is something nefarious about
> companies that don't file quarterly financial statements with the U.S.
> Securities and Exchange Commission. That would knock out virtually every
> foreign company listed on the Nasdaq and New York Stock Exchange --
> including giants like Nokia (NOK, news, msgs) and Glaxo Wellcome (GLX,
> news, msgs) -- since none of them has to file statements at the SEC,
> either. And they don't.
> * The column complains that Mirror Image Internet, a key
> subsidiary, was virtually bankrupt and had "no material revenues, no
> income and no assets" at the time that Xcelera.com made its initial
> round of investments. Seems to me that this is what good managers are
> supposed to do: Obtain undervalued or mismanaged assets and turn them
> around. The company had no revenues because its main attraction was
> intellectual property that had not yet been exploited. In that way it
> was little different from Wall Street darlings Akamai Technologies
> (AKAM, news, msgs) and Critical Path (CPTH, news, msgs), which nailed
> better than $5 billion market capitalizations upon going public, despite
> having less than $900,000 in trailing 12-month revenues each.
> * The column complains that the company had issued a flood of
> press releases to boost the stock and that only a couple of Web writers
> had bit and written about the firm. But there had actually been a long
> series of articles in trade magazines about Mirror Image through 1999.
> New York Times columnist Floyd Norris wrote about the firm the day after
> I first wrote about it last September. And Forbes columnist and futurist
> George Gilder wrote favorably about it in his popular newsletter.
> Moreover, the number of press releases was actually scant compared to
> competitors like Akamai. In January, for instance, Xcelera.com issued
> five press releases, while Akamai issued 16.
> * The column suggests that Hewlett-Packard (HWP, news, msgs) and
> Exodus Communications (EXDS, news, msgs) invested in the company merely
> to gain a new customer. But my sense from talking with managers at those
> two firms is that both see Mirror Image's technology as having the
> potential to transform the way we use the Web, and thus a strategic
> investment. A Merrill Lynch analyst called Mirror Image's capacity to
> make all Web content local "a fundamental shift in the operating nature
> of the Internet."
> * And the column lastly finds it shocking that a company
> controlled by Xcelera.com insiders sold shares near the stock's peak in
> March. These were shares the company, VBI, had bought in November,
> according to records -- simply an investment that turned out well.
> Insiders buy and sell shares of their own stock in the open market as
> investments all the time; there's nothing unusual about it. In this
> case, the net change in ownership by insiders is virtually unchanged in
> the past year, according to management. More importantly, no Mirror
> Image insiders are on record for having sold shares despite the stock's
> historically unprecedented run-up.
> Most curious about the MSNBC column is that it dealt cavalierly with the
> only thing that really matters: Is the company's technology useful, and
> is its business model plausible? It's true that significant revenues and
> earnings are at least six months away, and that Xcelera.com shares had
> advanced an unprecedented 90,000% to its peak in March merely on
> speculation that the firm would be successful in the future. (It later
> fell 70% from its peak in the recent crash before a partial recovery.)
> In that sense, Xcelera.com has behaved like a late-stage biotech stock
> whose value is measured better by psychologists than accountants. Yet it
> is also true that, like a biotech stock, its earnings could be
> remarkable if and when early investors' hypothesis about the value of
> its technology and the extreme leverage of its plan turn out to be
> accurate. Mirror Image doesn't cure cancer, but it does address a very
> large market for bandwidth conservation. For some fraction of investors,
> that's a risk worth taking with the aggressive portion of their
> I interviewed company chairman Alex Vik while in New York on April 17,
> by the way. I didn't learn much more about the company's expansion plans
> than I've already written, but both as a journalist and as an investor
> in his company (since December -- three months after I first wrote about
> it in this column), I also wanted to size him up. That's hard to do even
> with our best friends and relatives. But for what it's worth, I came
> away thinking that Vik -- a champion collegiate golfer while at Harvard
> University in the '70s -- has a better-than-average chance of hitting a
> great wedge shot out of the dot-com sand trap. Being a patient soul, I'm
> willing to wait until this time next year to determine whether he's
> birdied or bogeyed.
If you don't buy from me, we're all going to Hell. I mean that literally. People will die this year because they didn't buy my software. -- Michael Saylor, _New Yorker_, April 3, 2000, p. 35
This archive was generated by hypermail 2b29 : Wed May 03 2000 - 20:55:01 PDT