Thursday, July 29, 1999

Metricom, Inc.
(Nasdaq: MCOM)
Phone: 408-399-8200
Website: www.metricom.com
Price (7/28/99): $28 1/2


One might say that Metricom's stock has ricocheted off its lows. After skimming along most of the last year in the single digits and getting as low as $3 per share last October, the stock abruptly headed towards the sky in June. While closing at $10 on June 15, the stock reached as high as $56 1/2 by July 9. Ricochet!

The most salient piece of news behind the abrupt bounce was the $600 million cash infusion the company was receiving from Vulcan Ventures (owned by Microsoft co-founder Paul Allen) and MCI WorldCom (Nasdaq: WCOM). The combined investment means that Metricom will be able to dramatically increase its development of a nationwide wireless data network, and also validated the company's plans and products in Wall Street's collective mind.

The shares of Metricom have cooled a bit since the blow-off highs made soon after the news came public, but those who have held more than a few weeks have seen the value of their shares multiply in value.


Headquartered in Silicon Valley with branches across the U.S., Metricom is spearheading the use of wireless Internet access devices. The company's primary product is Ricochet, a service that allows wireless access to both private systems and the Internet via its proprietary network for a flat monthly fee. Think of it as cell-phone Internet access without the phone or the per-minute charges. The service is now available in the Washington DC, San Francisco, and Seattle metro areas, and rapid rollout in other cities is planned. At this time there are roughly 29,000 Ricochet subscribers.

Right now, the access is offered at speeds similar to typical dial-up services, somewhere near 28.8 Kbps. Metricom is in the process of testing its system at 128 Kbps, and the company's recent investment from and partnership with MCI WorldCom and Vulcan Ventures will allow it to offer the higher-speed service in major municipalities across the country in the coming months.

Paul Allen's Vulcan Ventures bought a 49.5% stake in the company for $55.8 million in January 1998. Both Vulcan and MCI WorldCom will infuse $300 million each into the company to fund the nationwide expansion of the 128 Kbps Ricochet service. Vulcan will retain its approximate 49% stake in the firm after the investment is made, while MCI WorldCom will own roughly 38% of the company.


Income Statement
12-month sales: $16.7 million
12-month income: ($90.8 million)
12-month EPS: ($4.83)
Profit Margin: N/A
Market Cap: $549.9 million

Balance Sheet
Cash: $20.8 million
Current Assets: $28.8 million
Current Liabilities: $26.0 million
Long-term Debt: $75.3 million
Shareholders' Equity: ($67.0 million)

Price-to-earnings: N/A
Price-to-sales: 32.9

*Note - Market capitalization and balance sheet figures do not take into consideration the Vulcan/MCI WorldCom investments.


Perhaps one way to have found Metricom before the hordes of investors did earlier this summer was to talk to a Metricom customer. By most accounts, Metricom customers are fairly happy with the service the company provides. The whole concept of untethered Internet access is quite attractive, and talking to the few early adopters of the service would have perhaps tipped you to the fact that Metricom's aggressive expansion plans were more than just hype.

Another way to have possibly seen that Metricom was headed for higher ground was to look at Paul Allen's equity stake. The multibillionaire investor believed enough in the company to buy 49% of the firm when the technology was largely unproven outside its niche. And it only makes sense that Allen would continue to fertilize this particular investment after the service was up and running commercially with expansive growth opportunities.


While Metricom's wireless service remains quite an attractive product, the trailing financial results are nothing short of ugly. Not only is the company in the red, with net losses far exceeding total revenue, but the company also has negative shareholder equity and an accumulated deficit of $265 million. This $265 million represents the total losses racked up at the company over the years and is no trivial amount.

One might forgive the losses if Metricom was a development stage company, but the firm has been operating at a loss for quite some time. The company has been public since 1992 and has not had a single profitable year in that period. To say management has had a hard time creating positive earnings would be an understatement.

But, that was then, and today's stock price reflects future cash flow expectations. The combined $600 million investment from Vulcan and MCI WorldCom will give Metricom the ammunition to actually go out and market its service on a nationwide basis. In the past, Metricom was doing little more than serving a few niche markets and a handful of early adopters. But now the company is taking its service to the mainstream. So, while the trailing results should give pause for thought, they may prove to be irrelevant.

One concern investors should consider is that the company does not actually own the license to the radio frequencies it operates in. Owning the frequencies is a major asset the company simply does not have. Plus, there will be other wireless competitors coming down the road. Metricom may have the only commercially viable data service at the moment, but that will undoubtedly change.

It may be a little premature to jump into the stock headfirst, without actually seeing how the company performs in its national rollout, but Metricom is nevertheless an interesting wired-world company worth keeping tabs on.

--Paul Larson

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