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Thursday, January 29, 1998 Wednesday, Iomega closed at $8 1/8, unchanged. TODAY'S RECAP: For the first time in a week, the stock did not drop in price by the day's close -- likewise, the mood of the board has leveled as well (but not all positively). Topics such as shorting the stock, Zip unit sales growth, the P/E, Jaz2 release dates and more made for intense, detailed discussion yesterday. Enjoy! INDEX: Use the Search or Find feature of your word processor to locate the article number (Find: 1++, 3++, etc.) - or use AOL's Edit>>Find in Top Window Feature. If Find in Top Window is dimmed, just click on some text, anything, in the IOM Today window and try again.
1++ Janovsky1 provides a balanced response to shorting Iomega and holding
a stock.
Recap written and posts compiled by TMF Weekly. _______________________________ And now, the Best of the Board...Started 9:00pm ET 1/27/98. 1+++++++++++++++++++++++++++
Subject: Re: It's All Perception << It WILL get worse, It's obvious. BTW, we closed out all of our shares (at a loss) immediately when the numbers came out. We are not short. I'm just trying to help. >> If it's so obvious, please go short. I don't begrudge anybody making money, and if you lost some from being long, then I even encourage it. But since I'm assuming that you LIKE making money, it seems to me that saying it is obvious that IOM is going lower, and that you are not short, does not make any sense. Maybe it's not so obvious? Maybe you realize that the company is, by conservative estimate, going to grow sales 35%. Earnings would grow a similar amount save the fact that they are taking on an aggressive advertising strategy that sacrifices some short term profits for a lot of long term ones. I guess it's not obvious that the company's fundamentals are going to get worse, so you must be basing your recommendation on a technical standpoint. But wait, you're not short. So you are either giving advice on technicals that you don't follow yourself, or simply didn't bother to think about what you were saying before hitting "Send" (or before selling). BTW, I don't mind holding a stock that is going to be dead money for 3-6 months. This will give it time for people's heads to cool and the media to forget about IOM (they have a very short memory), so that when IOM starts putting up some great numbers, it will be that much easier to get a strong reaction. 2+++++++++++++++++++++++++++
Subject: Re: It's All Perception Rob, This board has been destroyed. The stock has been destroyed. Doesn't keep Gateway from including the Zip standard on their new top end 333MHZ Pentium II. Doesn't stop Dell from making you uncheck the Zip to get your new system without a Zip. Doesn't stop the Clik! or anything else. Record quarter. Record earnings, increasing margins. Greater Zip unit growth than even IOM's internal projections. Cash flow positive. Great balance sheet. And now Citibank and JP Morgan have converted Iomega's credit facility to a lower interest unsecured line. We've been screaming for advertising for two years. We've known that OEM drives will initially have lower ties. We know that Iomega is consistently late shipping product. Hell, what the analyst just did makes you think Iomega will never ship another new product. Thank you :-) And if those pirates win the temporary right to sell disks, BFD, nobody buys them anyhow. Yes, about 65 million shares have been traded in the last few days. Somebody is buying those blocks. Takes two to tango. And all the shorts that are spreading FUD around here will be the mindless pawns on the next cycle. Remember, Bulls get fed, bears get fed, and pigs get slaughtered. LOL So Kim Edwards wanted the employee options priced lower. Happens every year. When Iomega is a five billion dollar company, the options will be very valuable to Iomega employees, and the stock should be to surviving stockholders or their heirs. When the children get bored, this may become a viable place to visit again. In the meantime, remember, what goes around, comes around. PS If KE were truly worried about Iomega's prospects he would have gone out of his way to paint a rosy picture and unloaded as much more of his stock as he could next chance he gets. Wouldn't that fit his perceived character much better? 3+++++++++++++++++++++++++++
Subject: Re: It's All Perception << We've been screaming for advertising for two years. We've known that OEM drives will initially have lower ties. We know that Iomega is consistently late shipping product. Hell, what the analyst just did makes you think Iomega will never ship another new product. Thank you :-) And if those pirates win the temporary right to sell disks, BFD, nobody buys them anyhow. >> Well said and a helluva post, Dave. Actually, the setting we find ourselves in isn't too different from late '96---early '97, when the shorts were all over the board and bulls were scarce indeed. You're right, the market seems to be wildly overreacting to this relatively small earnings shortfall, given the still record earnings and increasing margins. I believe this decline was at least started by the shorts, who pounced on the opportunity afforded them by the downbeat conference call. And just as in fall '96 winter '97, the bears are out in force here on the board, with lots of new screen names, shaking the trees for all they're worth. <<Yes, about 65 million shares have been traded in the last few days. Somebody is buying those blocks.>> That's what I've been thinking. And who is that somebody likely to be? Certainly not Joe retail; they'd be scared to death of this falling knife. The well-heeled whoevers buying those big blocks must feel pretty sure the stock is going back up. So to those posters who seem to desparately want me to sell...forget it. In my opinion (humble today, for sure ;) the fundamentals haven't changed that much, and the company's vision is still valid. Sure, operations could alway be better, but a company growing this fast is bound to have some missteps and logistical problems along the way. Don't forget, these people took this outfit from a few hundred million to a two BILLION dollar company in the space of a few years... I hardly think they deserve a vote of no confidence based on this quarter's still stellar performance. 4+++++++++++++++++++++++++++
Subject: Re: IOM future price << Where do you gurus see IOM's price per share in the next three months? I expect to see it at between $14.00 and $18.00 per share. >> I expect it to be at 19.375. In fact, on April 3, 1998, it will be at 19.375. Actually, that is not true. But, bear with me as I digress a bit. Why do some look to 'gurus', when the only 'gurus' they put up with are the ones that say the stock will be equal to or higher than their expectations. BTW, on what basis to we value IOM (THE STOCK). It is widely accepted here that Wall street is 'just plain wrong' about IOM, and that Fundamental analysis suggests that 'fair value' for the stock is at 17 or so. So, how do us 'gurus' decide how to answer this question. the F.A. has NEVER been right, or at least the times the stock was at 'fair value', people here were still saying that it should be several points higher. In fact, in analysing this stock and this board, there has never been a time, that the stock hasn't been several points 'undervalued'. Back to the question above, when I try to predict the price of the stock, I am not going to use tie ratios, projected sales, Clik, etc. I'm not going to assume that every new computer will (or will not) have a zip drive installed). I am going to check out the T.A. (IOM is well below all of the moving averages, the 200 day is at about 12.). My guess is that it will not drop below 7.0 or so (I'm not sure where people are getting 5-6 except that things that are undervalued tend to get more undervalued rather than rocket upward). My guess is that it won't be back above 12 within the next 3 months. But the bottom line is that at this point, there are so many differing opinions, and confounding variables (fundamental, not technical) that this isn't a stock I would own short-intermediate term. I wouldn't be shorting it here either, FWIW. If I owned the stock for the long-term, I would be seriously considering whether the 'paradigm' so prevalent here is actually correct - and if it is correct, whether Wall street will ever buy it. When the 'heck' will they devalue the Ringit again..... 5+++++++++++++++++++++++++++
Subject: Where we are (was Re: Buyout talks ) << I tend to agree with most of the logic from some of the long time longs saying that a buyout probably won't happen, but when you can take ove a money making company (one with manageable credit) for around a years Sales, that logic starts waning a little IMHO. >> I would not tender my shares at today's price. But I think the point can be made that Iomega is cheap enough to be a buyout target without it necessarily being a possibility. Iomega has a trailing 12-month PE of just UNDER 20. All time low valuation for the new Iomega. Iomega has a forward 12-month PE of 16.7. All time low valuation for the new Iomega. Iomega has an Enterprise Value/Market Cap ratio of 0.96. All time low valuation for the new Iomega. Iomega had $137 MM cash flow from operations in the past 12 months. The prior 12-month period they had -$55 MM cash flow from operations. I would say it would be a great move for another company to purchase Iomega for an amount equivalent to annualized 4Q97 sales. It would also be a great move for Iomega to use some of their ever growing cash to buy back shares at these depressed prices. The two times Iomega has bought back shares was around a split adjusted $8/share. Iomega is once again a momentum stock; but this time to the downside. Just as IOMG could rise, at one time, irregardless of such measurements as trailing 12-month PE, IOM can drift down to who knows where short term. But the revised analysts' estimates are all in and they are not looking for negative growth or even growth below the trailing PE. Iomega is still a growth stock; EPS grew 77% year over year in what was a "horrible" quarter. I believe two things have to happen for Iomega to earn a higher PE (I think IOM's trailing PE should be closer to 35 than 20): 1. Jaz2 has to ship. 2. Iomega needs to beat a quarterly estimate. #1 should happen before April. #2 won't occur before the third Thursday in April at the earliest. So, if you are long (like me) you can take solace in the low PE and keep your eye out for Jaz2. If you are short you can ride the momentum and I wish you luck. If you don't own IOM and your reading this board these days you are either a masochist or a great fan of drama. LOL If you are seriously looking out 2-5 years with IOM then I believe a trailing PE of 20 has to be extremely attractive. 6+++++++++++++++++++++++++++
Subject: Re: whose buying? Good point, somebody or a lot of somebodys big had to be buying as this was not all short covering. All I know is that they were pretty smart to be able to hop on when all the doom and gloom is so prevalent. My guess is that they won't begin to promote what a wonderful find until all of their low level accumulation is complete. In the meanwhile, the poor common folk ( you and I ) are continualy subjected to the chicken littles who profess that the company is on the verge of bankruptsy and will soon be worth 2 to 6 now. It's pretty easy to scare those who have lost significantly in the last week ( on paper ), who rightly are upset with the mistakes that those running the co. have made imo. It's easy to forget all of the good things that they have done. I generaly agree with Mark Rogo, but have to differ when he dosn't feel the fundamentals haven't improved since he bought in. They didn't have Clik, which I for one feel it will make IOM more that a single product corp., and certainly has a very bright future with what is known today! Could something new supplant it before it is commercialy launched? Well I guess anything is possible. If however, I were a betting man I would certainly take the wager that Clik will be a big success. Obviously I think that all of the announcements that have been made since I have been a shareholder are a positive for the future of the company. If everything is measured on a day to day stock price, or the fact that they allowed the analysts consenses estimates to be missed by one or two cents; and that by promoting the Zip drive will in the eyes of some result in " the law of deminishing returns". Then I guess it is a bad thing to advertise so strongly; for if it works then we will then have to worry if we have enough components, or it we have the production to handle the excess demand etc. Ever since I have owned this stock, there have always been some complaints, such as the ones above. I just wonder if it's realistic to expect a company that has grown so fast to execute in a flawless fashion? I would like a perfect company, with a perfect stock appreciation but is it a realistic expectation? I don't think so. I will hazzard a guess, there are a lot of stocks out there that are very successful as stocks, but not nearly as successful today, or potentially in the future as IOM is right now! To those that believe the Street is always right, and dosn't believe that they tend to over react, just look back a week or so when everybody was trashing all of the Tech Sector. Today it is a darling again! I understand and truly empathize with those that threw in the towel since last Thurs., but I know I have been in a lot poorer investments in the past. Hopefully those that remain will be positively rewarded. 7+++++++++++++++++++++++++++
Subject: Re: Jaz2 announced early? << Where would we be on Jan. 28, 1998 in terms of share price if Jaz2 was not announced but Orb, Quest, etc. were announced, hyped at Comdex, and scheduled for release (as they are)? If all we knew was that bigger products were coming out from competition and Iomega had nothing coming but more Jaz 1? Instead of a delay for Jaz2 everyone would assume the entire Jaz line is dead. >> Vaporware from a company with zero products and from SyQuest could've killed the Jaz line? That's odd because just about everyone here says SyQuest doesn't matter to Iomega -- so certainly Orb should matter less. I've been saying it for months, even when I was long the stock, that SyQuest did matter. In a major way. Finally, Patrick seems to agree. If it mattered then, it matters now. << I would think the share price would be closer to $6 if the above were true. Shareholders (and people are always screaming that we deserve to know things, things as vitally important as the tie ratio which is ridiculous) needed to know in November that Jaz2 was close to go. It didn't happen, but none of the other products has shipped either. >> Nothing but the SparQ, of course, which probably froze Jaz sales a lot more than people here will ever admit. << BTW not counting buying disks in bulk, 10 gigs will cost $1,644 using Jaz2. 10 gigs costs $1,789 with Jaz1 now. So I would conclude the initial price points for Jaz2 are not too expensive. >> This is like saying the Mercedes Sport Utility vehicle is cheaper than the Mercedes Station Wagon. If Iomega wants the boutique crowd, you're right. If Iomega wants Jaz to go mainstream -- and production capacity of 3 million proves that they obviously do -- then saying Jaz2 is cheaper per meg than Jaz1 does nothing to disprove this obvious fact: Jaz1 is thoroughly overpriced. Jaz1 drives cost twice as much as SparQ's (external). Jaz1 drives with 3GB, external, cost like $600, vs. $300 for SyJet (please check my numbers if I'm wrong here; remember SyJet buyers get a second cart free). Jaz1 carts cost 8-12 cents per megabyte (actually, singles still sell for $124.95 in some places); SparQ carts cost 3.3-4 cents per megabyte. ENTIRE HARD DRIVES CAN BE HAD FOR 4-5 CENTS PER MEGABYTE AT FRY'S! Sorry for shouting, but get a grip on that for a second. Jaz is following the Macintosh strategy and that scares me. Volumes are good in the early stages, but the market is growing rapidly and, in a move to protect the obscenely high margins on the product, prices are being kept artificially high. Yes, Jaz does cost more to make than SparQ. It has a dual-head assembly rather than SparQ's single-head assembly. But surely Iomega could make up the difference with lower-priced circuit boards (hello, component integration?) and better volume-purchase agreements. Iomega's head start is probably 1.5 million drives or so. It appears they plan on selling a lot more Jaz drives this year based on capacity available. I would suggest significant pricing action is required almost immediately on Jaz1 drives and cartridges. I would also suggest that after the first six months of Jaz2 there is a need for pricing action there too, especially when early sales fall well, well short of expectations. 8+++++++++++++++++++++++++++
Subject: Re: Jaz2 announced early? << Slowing of the growth rate is not good. It would be nice to see someone more capable than myself show us what growth rate would be necessary for Zip to be included in say 50% of computers sold each year by the year 2000 or 2005. It would be interesting to compare this to the actual growth rate. I read an article that indicated that the rate of growth not only slowed in 4th qtr 97 but actually went negative for the month of December. I'm not saying growth declined but that the rate of growth declined. >> It is hard to answer that question... With 60% growth through 2001, then there would be 1 Zip shipped for every three PCs shipped. With 80% growth through 2001, then there would more than 1 Zip shipped for every two PCs shipped. Now this is Zip unit growth, mind you, not Zip revenue growth -- another matter entirely. It also doesn't account for the fact that a lot of Zips may still be aftermarket rather than OEM at that point. In the 80% scenario, for example, if 80% of those were OEM Zips (65 million or so), it would represent 40% of the OEM market at that time. Because there are a number of OEM machines that wouldn't make sense for Zips (tiny notebooks, sealed PC desktops, etc.), one could argue that 80% growth of the Zip unit shipments would take Iomega to the halfway point plus one, i.e. more than half of new PCs would come with Zip drives. Now, what about unit growth? Well in 1996, I think there was some consensus that about 4 million units were shipped. In 1997, it was about 8 million. That's about 100% increase and the numbers for fourth quarter seem to be strong (about 3 million shipped). Keep in mind that this occurred without any official retail pricing action and without major new OEM penetration (until very late with the Compaq machines). For unit sales to grow 80% compounded over the next four years, however, a lot will need to happen. First, retail prices will have to fall further, to $99 and below (if Staples, or whoever, now does $89 post-rebate specials, they'll have to do $69). Second, OEM prices have to fall a lot, I'm guessing to about $25-28 by 2001 -- perhaps even a bit lower. Third, disk prices will have to fall: 1 packs will be $10 at most, 3 packs for $25 and $10 packs for $60. Fourth, Iomega will need to sell the world on the notion of the Zip as a must have (hence we see huge ad expenditures, using retail sales figures to drive OEMs to add Zip, etc.). Fifth, whatever I missed. _______________________________ End Report. Posts covered through 9:00pm ET 1/28/98. _______________________________
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