From: Linda (firstname.lastname@example.org)
Date: Thu Sep 07 2000 - 19:18:34 PDT
[In view of CMGI's emphasis on 'path to profitability', this is not
The Vultures Descend: MotherNature.com
05-Sep-00 01:05 ET
The internet stock market has really come full circle. There was a
day when any internet stock, particularly one that was "first in its
category," could receive a welcome market reception, with a well-mixed
crowd of investors and daytraders. Now, virtually anything labelled
"dot-com" is shunned, particularly, consumer retailers. Some, like
MotherNature.com, have started to attract the vultures.
MotherNature.com went public on December 10, 1999, at $13 a share,
raising $53 million. Aside from an intraday high of $14 1/2, MTHR has
been declining ever since. A victim of bad timing, (a year earlier, and
maybe Amazon.com would have acquired MotherNature.com, giving
everyone an exit), the stock now trades at just $23/32. That's less
$0.75 a share.
But the company still has $29 million in cash, or $1.96 per share. With
$29 million in cash, the company has a market capitalization of just $11
Is it any surprise that Sitestar.com (SYTE) has offered to buy the
entire company for $0.75 a share? The offer was made on August 28, when
MTHR was trading for just $0.43 a share. Where Sitestar.com will get the
$11.6 million needed isn't clear, since it only had $344,342 in cash on
hand, with total assets of less than $600,000, as of June 30, 2000.
But, presumably, when (if) you can buy a dollar for 50 cents, you can
MotherNature.com has one of the best "pedigrees" around. It is 8% owned
by CMGI, with equally impressive venture capital partners, such as
Bessemer and Morganthaler Ventures, both with 8% each.
Furthermore, MotherNature.com has been showing strong revenue growth,
and putting up better margins. While it has been growing strongly, it
has increased its gross margin. In addition, it has been decreasing its
operating expenses significantly. Operating expenses declined from $18
million in Q1 down to $10 million in Q2, but unfortunately also
accompanied by a decline in revenue from $4.1 million to $3.4 million.
Except for the sequential revenue decline in Q2, the historical revenue
curve has been pretty strong. In 1999, revenue more than doubled every
quarter. But just as soon as MotherNature.com went public, the revenue
curve flattened, to $4 million in Q1, and then $3.4 million in Q2. The
revenue curve now begs the question of how MotherNature.com will grow.
But with a burn rate of $9 million a quarter, they have less than 3
quarters of cash to become profitable.
What To Do?
The announced offer to purchase MotherNature.com really amounts to this
question: "What to do with an unprofitable model?" That's what
Sitestar's offer does: force the question.
The best guess about Sitestar's plans is the obvious one: close the
business, and take the cash, probably about $10 million, after paying
It would seem absurd for MotherNature.com to sell out to this offer. It
would make more sense to dissolve the company themselves, and just
pay out the cash to all the shareholders.
But what options do they have? Here are the only choices:
- Sell to Sitestar. (Not likely. )
- Liquidate the company now. (Also called quit - extremely unlikely.)
- Raise more money publically. (Probably impossible)
- Raise more money privately. (From whom? Only someone already in the
health supplement business seems possible, but if they aren't
internet yet, the MTHR story would be scary.)
- Get profitable in eight months. (With the sequential revenue decline
in Q2, all fantastic revenue projections vanished. So did profitability
in eight months or less.)
- Merge with someone else. (Who? - at what price? It would probably mean
- Get bought. (which brings us back to Sitestar.)
Now matter how you look at it, MotherNature.com is in a real bind, just
nine months after their IPO, and just nine months to burn-out.
A Proxy For Unprofitable Companies
MotherNature.com is a good example for every unprofitable internet
stock. Sooner or later, every company with losses, and no clear path to
profitability (there are many), will be in the same bind
MotherNature.com is in now. At some point, someone, whether a creditor
or an acquiror, forces the issue of "what to do."
Is this the future for unprofitable internet companies? Being picked
over like scrap metal? Tender offers for 50 cents on the dollar?
The stock market always looks ahead. The collapse in April was a
realization that the hard, cold reality MotherNature.com is now facing
was coming. Many companies with strong cash hoards have postponed it.
But reality is unavoidable, and painful when postponed.
For that reason alone, it will very interesting to see how
MotherNature.com reacts to Sitestar's offer, (assuming a formal tender
offer is actually filed with the SEC - still not done.)
After all, as most of us old enough to remember TV ads from the
seventies know, it's not nice to fool Mother Nature.
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