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Transmitted: 12/3/96

Part 2. Fasten Your Seat-belts

Part 3: Coming Down for a Fly-by

Part 4: Throttle-Up Full

Part 5. Conclusion, And You Thought It Would Never End

Edgar Financials

Iomega's Web Site

Iomega Corp: A Retrospective
by Jeff Fischer (MF BudFox)

Part 1: The Steps to the Launching Pad

The feeling of rejuvenation which spring often brings was experienced early by many in 1995. As winter slowed down and died for much of the country in February and March of that year, something was happening in the message boards of the Motley Fool. The Fool was about seven months old, and the possibilities presented by an entire country of private investors connected to a common site, though talked of and realized consciously, were relatively unproven materially. Those possibilities were shown to many investors in a booming and rewarding explosion over the following months; while eventually, many would argue, the "consequences" of the new media took its toll on others down the line.

In the years before 1995, Iomega (NYSE: IOM) was a fledgling little company selling data storage products such as the Bernoulli and Ditto drives. From 1991 to 1994 the company's sales wavered from $136 million to $147 million each year, changing little year over year. In 1994 sales dropped, and the company lost money again, after losing 27 cents per share in 1993. Iomega needed to do something to assure itself of a future in the fast changing world of technology. Main competitor Syquest Technology (Nasdaq: SYQT) wasn't faring too well either, but was seen as the leader in the field more so than Iomega. In 1994 Iomega's stock languished near death, with a split adjusted high of $1.50 per share, and a low of 53 cents. It was a mangy dog of a stock in 1993 and 1994. Sales in '94 were in the $30 million range each quarter, never rising higher.

But many Fools collectively began to foresee great possibilities for this little company in early 1995 -- though just as many doubted that it could accomplish anything significant. The first Iomega message board began innocently enough when the stock was around $7.00 (a now split-adjusted price of $1.16): one day near the end of winter some Fools began talking about the company's new Zip drive. The Zip drive demo was introduced at the November 1994 COMDEX technology event, but was relatively unknown by all the public and almost over-looked entirely by the investing public. One of the Fools involved from the beginning, and still to this day, is Charles Park. His original screen-name was ChirosPark, and he has since been known in Fooldom as MF Chiros. I asked him for some of his early thoughts on the subject, and he wrote:

"Back in early March of 1995, I stumbled across the Iomega folder while browsing Fooldom. Since I had majored in Computer Science in college, I was interested in the product Iomega was putting out... I went out and bought some computer magazines to analyze the competitive landscape, [and] I realized that Iomega was putting out a revolutionary product in terms of price and design.

"Then, I checked out the management from the 10Q's, and liked the profile of Kim Edwards. With continued dialogue with the early [board] contributors such as Doc Jimbo, Dilligf, Ben, etc. etc, a comprehensive picture emerged. Our process focused on fundamentals such as marketing, product competitiveness, channel checking to determine the rate of sales, etc. It was an awesome coming together of minds."

The contributors on the boards analyzed the product and market extensively, and some Fools went to such extremes as to take their Zip drives apart. Dozens of interested parties visited stores to check product channels and sales, and some Fools in Utah drove by Iomega's buildings to count the cars in the lot at all hours of the day, night, and morning. At one point a campaign was started to have all owners of Zip drives share serial numbers on the board in an effort to determine Iomega's rate of production.

In one of the more infamous cases of first hand investigating, one Iomega follower, screen-name CyberLane, was given a tour of the company's production facilities and reported his subsequent analysis to the Fool's Iomega board. His estimated production numbers, in the end, were apparently close to accurate, but he was cited for giving away inside information. Iomega publicly discounted CyberLane's analysis, and much later the Iomega boards were obtained by the Securities and Exchange Commission for review, though mainly, it was thought, for review of bearish posts made in late 1995. Nothing came of the review.

Even in the early days of the board, the interest in Iomega was quick to spread. Within weeks of the first mention of the Zip drive, the board became the most active of all Fool boards, with a then massive 40 messages added per day (ah, for the good old days). The name of Iomega was heard in many of the online stock discussions a person attended on the Fool. But it wasn't one-sided. Nearly as many Bears on the story had emerged as Bulls, stating their bearish case: the Zip was too slow, it was unreliable, the disks were too expensive, the company was cash-flow negative and, furthermore, that they were running out of cash. But the Bulls loved the product and were convinced the company had a big winner on their hands, and refuted the Bears with sales and production projections from their channel-checking efforts. The arguments on both sides were pointed and intelligent, for the most part, and often passionate, and the interest in the names "Iomega" and "Zip" quickly grew throughout the Motley Fool.

Of course the founders of the Fool, Tom and David Gardner, being online as frequently as any other Fools, were soon to hear the buzz of Iomega, and soon began to listen closely to that buzz. David Gardner (MotleyFool) writes this of the beginnings:

"My primary early memory of Iomega was the postings provided in March and April. They gave shape in my mind to a techno-savvy community of investors who had just bought a Zip drive and loved it. Loved it for a dozen different reasons.

"Combine those with the imprimatur of Walter Mossberg, who in his Personal Technology column in The Wall Street Journal gave the Zip drive and the company strong praise. The stock that day knocked up from $9 to $10. We watched it for a week or two more, and by then it had run to $15!"

While watching and listening to the story online, Tom and David began to investigate Iomega on their own . While investigating, they wrote their potential buy report on the stock, and when finished writing and analyzing and reading and listening, it was time to decide whether or not to purchase the stock in the Fool Portfolio.

In the weeks the Gardner brothers and many other Fools had watched the company, the stock had risen from about $7 to $15 (before split-adjustments). While many Bears lurked in the folder and argued that the stock was outrageously priced and was ripe to fall after doubling so quickly, just as many Bulls were saying that the story had just begun. Still, the quick stock rise made many would-be investors hesitant to take a position even this early on. The Fool's buy report of May 16, 1995 read:

"On the face of it, we may appear to have missed the boat on this stock. . . hey, what's The Fool doing showing up at $15 when the thing traded at $3 a couple of months ago?"

David in mid-November of 1996 wrote of the feelings he had the time, back in the spring in 1995:

"Sometimes in the past I've sat through situations like that and said, 'OK, fine, I missed it and I'm never going to catch it.' When I've done that in the past (with McAfee Associates (MCAF), most recently), I just sit on the sidelines and generally get sick to my stomach watching great companies with their great stocks just continue to succeed... almost never go down.

"But fortunately at various points in my investing lifetime I have knuckled under and just bought a great company, even after having watched its stock rise 50%-400% already. (That was the case with America Online, in fact, which I'd followed all the way up several times in value from its March 1992 IPO price before finally deciding to buy... a few hundred percent ago)."

And the Fool's buy report read, "...One of our Foolish precepts is not to worry about past appreciation when we invest. . . America Online had risen in value five times over the two years prior to our purchase, and many thought back then that we'd missed the boat and bought late. Conventional wisdom will always hold little allure for us."

The Fool's initial report on Iomega painted the stock as more speculative than other Fool purchases, citing the negative cashflow and quarterly and annual losses, and the many challenges of a massive and quick new product campaign. Also, looking at the company's past offered little encouragement or guidance towards the future.

At the time of the Fool's purchase, Iomega had reported a loss of 10 cents per share in its latest quarter, against a loss of 29 cents per share the year earlier; and it was "distinctly cash-flow negative." The company was estimated to lose 3 cents per share in the next fiscal quarter. There was very little institutional coverage on the stock, a fact the Fool loved. At the time the stock was covered by only two investment firms, Brous and Emerald, and the Red Chip Review had recently published estimates of 60 cents per share for 1995 and $1.42 per share in 1996 (before any splits). The PEG on the stock, though the Fool pointed out the highly speculative nature of it, was a mere 0.21. The buy report reasoned the entire situation with the following:

"We think that if this company can succeed in ramping up production to meet the demand for its products, that we can double our money in the next 12 months." And concluded, "Skeptics initially, Fool HQ has become convinced over the past several weeks that Iomega is a good company that, due to a critical new product introduction, offers investors a fine opportunity for rapid share-price appreciation over the next couple of years."

So, on May 17th, 1995, while Iomega was still losing money, the Fool coughed up a fairly small $5,063 to buy 335 shares of the stock at an average cost of $15.12 ($2.52 now, after splits). They and many other Fools had seen the promise the story held; it was the type of promise an investor dreams of finding early; but it would have been nearly impossible to uncover such nascent promise in any story just a few years before, without the benefit of a collective online community.

The promise that many Fools saw began to unfold quickly.

Part 2. Fasten Your Seat-belts

(All Iomega stock prices and earnings per share amounts shown are before the 3-for-1 and 2-for-1 splits made in 1996, unless and until noted otherwise).

Iomega's stock hovered around the $14 range for about three weeks after the Fool purchased it. As earnings for the second quarter approached, and talk of the stock in the online community intensified, the shares rose $1 7/16 on Monday, June 5th, 1995 to close at $16 5/16. The next day the stock made a new high to $18, and the next day, to $22. But on Friday, June 9th, 1995, The Wall Street Journal ran a negative story about Iomega, connecting the stock rise to the Motley Fool message board and chats, and essentially calling it "hype," for lack of a better word. The stock fell $3 1/4 to close at $20.

June of 1995 brought about "a first" for Iomega and Fooldom, though. That June's PC Expo conference may represent the first time that the Fool started getting "Live" reports from the floor of a major computer show. Fools checked out companies and their products, and then sauntered to the AOL booth to "report" back online. The early Iomega boards held prime examples of "real-time, immediate reporting" of this kind, and this type of activity is prevalant today in many Fooldom boards, for both PC Expo and Comdex, as well as many other events.

Around mid-June, Iomega reported results for the second quarter of 1995. The company lost one cent per share, when expected to lose three cents. Sales increased from $40.1 million in the first quarter to $52.5 million, and increased 60% from 1994's second quarter sales of $32.8 million. The results were strong enough to keep the stock above $20 as the summer rolled into town, hot and heavy.

The summer of 1995 was one of the hottest on record for much of the country, with cities such as Chicago and New York having many days of temperatures well above 100 degrees Fahrenheit. The market heated up, too, and -- much different from the summer of 1996 -- it actually rallied. Tech stocks especially enjoyed a strong rally, and leading the tech stocks were semiconductor-related issues, which soared. Iomega, meanwhile, burst above $30 per share as the company announced, for one, an increased credit line with its bankers to finance growth. Also that summer Iomega considered contract manufacturing partners for Zip drives, and signed an agreement with Epson -- the goal being to meet the quickly growing demand. Indeed, in the spring of 1995 and into the summer, there were waiting lists at many stores if you wanted to buy a Zip drive.

That year, in the fall especially, Zip products were featured in trade magazines across the country, winning praise and awards. The Fool's message board for the company was more active than ever, and gained new followers each day. The stock had touched $34 before swinging wildly all the way back to $18 briefly, and then rose again to the high $20's. Price movement was volatile and volume was large. Yet, next to no one on Wall Street officially "covered" the stock. Emerald Securities and H.D. Brous were two of the few firms with "early" earnings estimates for Iomega.

In October 1995, the company announced a profit, and Fools discussed the outcome and outlook. Iomega earned 9 cents per share on $84.7 million in sales, a 139% increase from sales of $35.5 million in the same 1994 quarter. The company was entering the strongest time of year for retailing, was able to report a healthy ramp-up of Zip drive production while keeping costs down, and was mastering healthy product channels and decent margins -- Iomega was prepared for a strong fourth quarter. The stock reflected the optimism and continued to rise again.

Meanwhile, Iomega was still a new story to probably 95% of the investing public. But the Iomega message board was hotter than ever, with both posts and argument. Fools talked of production and related costs, and of the companies working with Iomega (such as IMP Inc. (Nasdaq: IMPX), which was discovered very early by some). They also discussed margins, possible sales, and, of course, the competition (such as Compaq's LS-120, and of course of Syquest Technologies's EZ-135 -- both of which were heated topics on their own). The higher the stock rose, the more the Bears argued the logic of it; but the Bulls fought back with logic themselves, and numbers. The board also noted the rising short interest in the stock (persons who sold borrowed shares expecting the stock to drop, so they could profit), and also noted that more institutions were buying shares -- but still, not many. Meanwhile, the number of existing Motley Fool Iomega folders, consisting of 450 messages each, was keeping pace with the actual Iomega stock price, and soon both were above 40. But the board in the late fall of that year was getting nasty at times, with ongoing "fights" between certain members, and there were some avid Iomega "followers" (shorts) who most everyone else disliked.

In December, the company shipped the Jaz drive. On December 5th, 1995, the stock rose $4 to a new high of $47 3/4, and December 14th the company announced a 3-for-1 stock split effective February 1st, 1996. The stock rose $3 that day to $51, again on large volume. The year wrapped up with Iomega at $48 5/8, up a hefty 222% for the Fool and like-wise for many Foolish investors. The Fool's $5,063 was on paper now worth $16,289 after seven months.

The stock had soared as the company's new success story became more widely known; In 1995, Iomega's stock was the number one performing equity on the Nasdaq National Market, the New York Stock Exchange, and the American Stock Exchange, rising nearly 2000%.

Not only was Iomega the top performing equity of all in 1995, but it ended the year as one of, if not THE, most heavily shorted stocks on the market. Hordes of investors thought the stock was outrageously overvalued and expected the stock to drop.

Investors both long and short Iomega undoubtedly thought that 1995 had been a truly unforgettable year. As they celebrated the beginning of the new year, they couldn't possibly guess the wild times which awaited them in 1996.

Part 3: Coming Down for a Fly-by

On January 24, 1996, Iomega announced fourth quarter 1995 earnings of 47 cents per share. Estimates presented by a few firms varied widely, but Iomega had outperformed the consensus. The stock jumped the next day to above $50 again. Sales for the quarter were $148.7 million, a 287% increase from 1994's $38.4 million; while for the fiscal year Iomega earned $326.2 million, a 230% rise from $141.3 million in 1994. Earnings soared from a loss in 1994 to 42 cents per share in 1995. But the company was still cash-flow negative and, as had been the case in 1995, again needed to raise more cash to finance their growth. Iomega planned for a secondary offering of 5 million shares on February 1st. It appeared everything was well on track, and it was no fluke.

In the 1995 annual report, Iomega President and Chief Executive Officer, Kim Edwards, wrote:

"Twenty-four months ago we set out to create a "new" Iomega by providing customers, 'what they wanted, when they wanted it, at a price they could afford to pay.'"

"We interviewed a wide range of people to find what they thought about storage. We analyzed the market and reviewed the competition. We added key personnel and asked all our employees to 'go the extra mile.' We even went outside the Company to form alliances with companies to rapidly expand manufacturing capacity and assist in creating standards. In short, we [turned the company into a] customer driven new Iomega with a charter to 'provide consumer-friendly personal information management solutions to help people manage their stuff.'"

It wasn't brain surgery, though it was ingenious. The company found out what people wanted and needed (such a novel idea) and produced it at a price they could afford. 1995 was the first year which showed the fruits of hard labor. Management hoped to make 1996 at least twice as large, but many challenges faced them.

Due to the coming secondary stock offering, the company was in a quiet period as February approached. On January 31, the stock split 3-for-1, from $44 3/8 to $14 51/64, after the market closed. (Comments on share price and volume from here until noted reflect the 3-for-1 split, but not the 2-for-1 split in May).

On the day of the split, in a surprise announcement, Iomega said that the secondary offering was "temporarily canceled." The media jumped all over the story, and shorts attacked the stock in the message board, which was frantic for explanation and in some cases angrily blaming the shorts for the postponement. The company explained in a letter to shareholders that the secondary was canceled due to uncertainty in the marketplace and the volatility of the stock price -- an argument supported strongly by, well, the obvious volatility of the stock. But as it was still in the imposed "quiet period," the company couldn't make significant press releases of any kind, and the shorts took advantage.

Barron's, The Wall Street Journal, Mr. Herb Greenberg of Biz Insider, and many others attacked the stock and speculated that the company had suffered a falling out with investment bankers, signaling that the stock was over-priced. They also attacked Iomega's books and accounting methods, and said that without the cash the company was doomed. In one column, Herb Greenberg went so far as to say he expected the stock to fall to low "single digits" the next day, in what was probably one of the worst investment journalism statements written. He then went on to write about Iomega several times per week for a period of time, and often in succession. Then, in a capitalistic move, he expanded his own forum on America Online to discuss Iomega; that forum withered and died over time.

At the time of Herb Greenberg's infamous "single digits" or "$7 tomorrow" reference, Iomega was trading around $13 and stayed there. The day after the secondary was canceled, the stock had fallen from $15 3/8 to $13 on "most active volume" of ten million shares.

The attacks on the company and stock continued the next several weeks, while Iomega could do little to refute them. Some in the Iomega board went so far as to suspect the attacks were contrived and organized by several big-money managers on Wall Street possessing large short positions on the stock. The stock became the most heavily shorted stock on all exchanges, with at points 35% or more of the available shares sold short. For a brief while those shorts were relatively happy. The stock fell to $13 after the split, and then stayed in the $14 to $15 range for four weeks.

Others thought the outright attacks on the stock were made by the media because Iomega represented, more than any other stock, the "new online world" with all its possibilities, and that threatened the old guard. If they could bring down Iomega and all the investors with it, perhaps they could turn them away from the online world. That chain of thought is speculation, but if ever true, it was obviously futile and a very small thought, especially considering the scope of change the world is undergoing beneath the strength and promise of the online and Internet world, and the voice and power -- and community -- this medium gives to an entire country at once and individually -- as well as collectively.

Iomega soon secured much needed financing through a $46 million convertible bond offering, which gave the Bulls grounds for celebration, while the Bears pointed out that the money raised wouldn't last through summer. The intense battle in the Iomega folder continued, and grew more ugly as tensions rose. The short interest on the stock was record high, and the folder was "famous" enough to attract shorts and longs from any vocation. We'll perhaps never know where some of the posts, both bearish and bullish, originated, or the implications behind them if we were to know who wrote them. Many new names appeared and soon disappeared as the kitchen grew hotter in February and March of 1996, while to this day the trusted and known names have remained active in the folder.

In the second week of March the stock began to rise again, closing on Friday, March 15th, at $19 1/2. On the following Monday, technology investment firm Hambrecht & Quist (NYSE: HMQ) initiated coverage of Iomega with a Buy rating -- though it was a "buy on dips" statement. The stock soared to a new high of $24 1/8. A long dry spell without new highs was broken, and the message board was hectic with people claiming a "short-squeeze" was taking place, and with so many shares sold short on the stock, it was hard to disagree.

Part 4: Throttle-Up Full

During the following few months something happened that all people involved will probably remember the rest of their lives. Folks, and known Fools, were made paper millionaires over the course of weeks. Others were wiped out. At least one investment firm was said to have been put out of business by shorting Iomega. April rolled around and Iomega opened its mouth and said, "Ahhh...." again and again.

On April 2nd, 1996, the stock made a new high of $27 3/8. The next day, an agreement with Dell Computer (Nasdaq: DELL) was announced. Dell agreed to sell Zips from their catalogues. That day the stock rose to close at $29 1/8 after touching $30 in intraday trading. The next day the stock jumped 10% to $32 1/2 as the Nasdaq Composite made a new high.

The stock, discounting the 3-for-1 split, was at $97.50 per share, after being $7 one year earlier -- an amazing 13 times return. Suddenly CNBC was onto Iomega heavily again, and followed the stock's movement and story nearly each day; CNBC called Fools who followed the stock "Iomegans," and the words "cult stock" were said a few times. Iomega Fools didn't take lightly to such statements, and barraged CNBC with complaints.

One day a CNBC fellow -- I believe it was good old Joe Kernen -- took to reading the prospectus of Iomega on-air and painted the legal cautionary statements as true negatives. The board was in an uproar and again CNBC was attacked with email and faxes from disgruntled investors. Still, Joe would often read the Iomega quotes each day with a look of disbelief. Fools didn't even like that. But the most potentially damaging acts CNBC did were calling competitor SyQuest Tech the "poor man's Iomega," and supplier IMP Corp. "the son of Iomega," because IMP supplied parts for Zip drives. Both SyQuest and IMP soared tremendously at the same time in May on the references to Iomega, and many Fools wrote to CNBC of the error of connecting such completely different companies to each other. Investors who then bought those companies have since suffered horrible losses. Both SyQuest and IMP stocks crashed back down.

Another stock which soared after mention by CNBC was Ancor Communications (Nasdaq Small-Cap: ANCR). This stock rose from $11 to above $40 in a matter of a few weeks while the market was soaring and as CNBC called Ancor the "next Iomega." The reference probably came from the Ancor board itself, where some giddy Fools had dubbed Ancor the next Iomega in posts. But the big difference between Ancor and the other CNBC references, such as SyQuest, is that Ancor is indeed a solid possibility and a "good" company. Ancor has one of the more pristine and intelligent stock boards on the Fool to this day, thanks to many members such as KL Hot Dog. Yep, you read that correctly -- KL Hot Dog.

Fools kept after CNBC, and for every somewhat questionable mention of Iomega, CNBC must have received hordes of mail and comments. In the end, the ultimate low was probably on May 7th when Joe Kernen blamed the Fool -- specifically MF Boring of all people -- of front-running stocks, after the Boring Portfolio's eight day investment in Zytec Corp (Nasdaq: ZTEC) soared. CNBC received a quick call from Tom correcting the mistake, explaining that all Fool stock trades are announced before they are made, of course. Still a few Fool stocks, interestingly, took strange turns and fell that day at the close, just after the CNBC statement.

In the end, though, CNBC's Mark Haines befriended some Fools through email, and apparently worked with his co-workers until CNBC began to improve their reporting technique -- and it could be said that this improvement was a result of the Iomega story. In that regard, things perhaps ended positively with CNBC.

In other mediums: The April 15, 1996 issue of Fortune Magazine ran a cover story on the Fools, with the bestFortunecover of all-time; and it also printed perhaps the most interesting investment-related article in 1996 to date. Author Joseph Nocera wrote an article called, "Investing in a Fool's Paradise." He did an excellent job researching the extensive Fool Iomega boards and interviewing key participants; he wrote of the famous and infamous board followers including: The1raptor (Raptor), QW001, Diomega, Cynicalguy, ChirosPark, BLBrew, LotzofGelt and DrJoeDoom..., and of the stories behind the names.

On Thursday, April 18th, Iomega announced earnings for the first fiscal quarter of 1996; they also announced a deal with Sony Corporation (NYSE: SNE). Earnings expectations called for 11 cents. The company earned 16 cents, beating estimates by 45%. Bulls were literally dancing through the stock's folder in anticipation of the next day, while Bears were oddly quiet. The next day the stock jumped to $37 1/8 ($111 3/8 without the 3-1 split) after hitting another new high of $39 in intraday trading. The Nasdaq also made a new high.

The report was great. Sales for the quarter rose 453% from the same quarter of the prior year, to $233 million. In all of 1994 the company had accomplished $141 million in sales; in 1995, $326 million; in the first quarter of 1996, already $233 million -- more in one quarter than for all of 1994. As for the strong bottom-line earnings, to note: in the fall before the holiday season Iomega had launched a massive and on-going advertising campaign, consisting of funny and memorable ads for the Zip with the effective "Because It's Your Stuff" slogan. The ads aired during the "Late Night with David Letterman Show," and during the stupidly unrealistic but popular "Friends" sitcom, as well as during big sporting events, such as the NCAA tournaments. Some Fools worried the expense of the ads would hurt the fourth and/or first quarter results. They didn't.

On Monday, April 22nd, the stock rose $4 to $41 1/8. That evening, Iomega announced another stock split, this one 2-for-1 on May 20th; Iomega said in part that they needed more shares outstanding in order to fulfill their options program. After the 3-for-1 split in February, another split so soon surprised many people. The stock absolutely bolted the next day. It rose $10 5/8 to a new high of $51 3/4 (or $155 1/4, again if you discount the 3-for-1 split). That same day, April 23rd, was Iomega's annual shareholder meeting in Salt Lake City, Utah. Hundreds of people and literally over one hundred Fools attended; Eric Turkewitz (MF ETurkey) said the event was "absolutely unreal" with energy.

On the 30th of April the stock rose $5 1/8 more to $54 1/2, and on May 1, another $5 to $59 1/2. All the while the stock board was hopping with much jubilation from the Bulls. Through the din, Fools would calm down often enough to share thoughts intelligently with each other. They wrote much on the speculation of new business deals coming for Iomega, and talk escalated of Iomega's Zip becoming the next standard. By May that was the biggest talk, and a majority of the major financial publications during this time period wrote something about Iomega, and many mentioned the possibility of a new industry standard -- in part to explain the rapid rise in share price.

Possible "partner" companies spoken of by Fools over the months included IBM (NYSE: IBM), Hewlett Packard (NYSE: HWP), Gateway 2000 (Nasdaq: GATE), and Packard Bell, among others. Many contributers claimed to know facts on alleged ensuing deals, while others helped pursue the investigations, and those types of messages usually kept a professional tone. As May rolled through, Iomega's stock burst above $60. On May 13th, Iomega importantly announced that the secondary stock offering was set to take place again, with J.P. Morgan (NYSE: JPM) and Hambrecht & Quist as underwriters. 5 million shares were to be sold, and also Iomega's line of credit had been increased another $40 million to $100 million. All was right in Iomega's world, and the "dream of a new standard" that many investors had hoped for appeared increasingly possible.

The month of May killed some people in many ways. May killed many shorts. Those it didn't kill, it hopefully made stronger. In what was one of the most incredible price moves for any major stock, Iomega topped it all off by gaining an additional 60% in just four days. On May 20th, the day before the 2-for-1 split, the stock rose $13 1/8 to $82 3/8, a new high. The next day the stock split and rose $2 1/8 to $43 1/4. The next day news came of an agreement with Acer Computer. This was a surprise which helped send the stock soaring $10 5/8 to $53 7/8, on 16 million shares -- again it was the most active stock on the market. Why was Acer such a surprise? Perhaps because the board had never mentioned the company as a possibility. On May 23rd, the stock hit the standing high of $55 1/8 on volume of 20 million shares, but closed at $51 1/8. May 23rd offered Packard Bell news. May 23rd also offered another negative article by The Wall Street Journal, and Tom wrote a great "response" to that article that evening.

On May 30th the long-going message board talk and "rumor" of IBM was made more public by the financial media in a print article, in which an IBM employee said (or "let slip?") that the two companies indeed had an agreement. Also on May 30th, just before Iomega's June 4th secondary offering, The Wall Street Journal ran another negative article on just that: the secondary offering, and Iomega in general. It was a harsh enough article that some Fools claimed Iomega should pursue legal action against the The Wall Street Journal for possibly messing with the company's secondary offering. The big fear among investors was that the secondary would be cancelled again. Bears of course were doing everything in their power to make that happen, was the argument.

Interestingly, the day before the secondary, competitor SyQuest announced a new 230MB product priced at $299. Many Fools said the product didn't yet exist, and that the company was only trying to take some wind from Iomega's sails. That same day, too, CNN financial network ran a flawed negative opinion on Iomega, Fools claimed. The next day, the Iomega secondary went off at $35 per share; the company sold 5 million shares, raising considerably more money -- much more -- than would have been raised had the secondary been accomplished earlier in the year. The stock was at $41 that day, though, and many investors were upset that the secondary only earned the company $35 per share. Some investors who had bought their shares above $35 said they felt ripped off.

The May 23rd 52-week-high of $55 1/8 equals a share price of $330 3/4 when not considering splits. $330 from $7 the year before, at the time of the first Iomega board. This represents a 46 times return on the dollar. $10,000 became $460,000. The Fool that week was up 1929% on Iomega. The $15 stock the Fool purchased was now $330 excluding the splits. The $5,063 investment had become $102,761 on paper, in little over one year.

Meanwhile, so many shorts had been slaughtered. The stock was the most heavily shorted on the market well before the most precipitous rise in price occurred, and all those shorts actually helped fuel the stock's incredible rise while covering their shares. Again, some were ruined by it. Meanwhile, as the stock rose, some persons shorted it again, or for the first time, and it is currently one of the most heavily shorted stocks again, now, in late November of 1996 -- as we go into Iomega's strongest period of the year once again.

The original shorts on Iomega had effectively placed bets against the intelligence and reason of the online community when they had shorted the stock, as Iomega represented the online investing community much more so than any other stock -- the war-cry of the Bears was "online hype!" Most of those doubters were proven to be terribly wrong and paid a dear price.

Part 5. Conclusion

And You Thought It Would Never End

With the secondary accomplished in early June and the quiet period over, Iomega soon began to make more business announcements as the summer rolled around, including deals with TDK (NYSE: TDK), Canon (Nasdaq: CANNY), Motorola (NYSE: MOT), Micron Electronics (Nasdaq: MUEI), NEC,Hewlett Packard and IBM -- officially. The stock finally tired itself out, though, and the market, which had been rallying to new highs much of the spring, didn't help. The market began to fall sharply. Iomega held its own in the $37 range until June 18th, when it wildly dropped nearly $10 to $26 3/4 on further news of "competition" from the LS-120 drive, a system made by Compaq Computer (NYSE: CPQ). Mitsubishi Electric Corp (Nasdaq: MIELY), and Hitachi-Maxell Ltd. (NYSE: HIT) announced they were going to support the LS-120 product. They joined Compaq, 3M (NYSE: MMM) and O.R. Technology in supporting that technology. Iomega's stock, which had seen $55 just three weeks earlier, had already dropped more than 50% from that high. It happened so quickly that most were stunned.

Over the summer the market continued to painfully correct. The S&P 500 lost about 11% at one point, and the Nasdaq Composite dropped about 19%. Iomega would announce good news and continue to drop. On July 18th, 1996, it announced second quarter earnings of 11 cents per share, a penny ahead of estimates, on $283 million in revenues. But those earnings were well below the "whisper estimates" of the Iomega board, which called for somewhere around 15 cents. CNBC reported that earnings were strong, but below what the Iomega board felt possible. The network speculated that failing to make the "whisper numbers" helped instigate the stock's sharp fall. The stock fell $5 to $22 1/2 the day after earnings, perhaps signifying how important the board had become, and how much people had listened to it.

With earnings, the company announced some softness in sales as well, especially in the European market, and it expected the softness to continue through the summer. The next week the stock fell into the teens, and then languished in August even as the market regained some ground. At one point Iomega was as low as $13 again. The "late shorts" had won a battle, it appeared, but what of the war? Still, even at $13, that represented a 62% gain from January 1, 1996 to August 1996 -- hardly shabby -- and a 1000% gain from the prices of 16 months before.

As September of 1996 rolled around, the stock was still one of the most heavily shorted on the market. In late July Barron's Magazine ran an article on big money managers, many of whom thought Iomega was one of the most overvalued stocks then, at $17 (it had a PEG of about 0.65 at the time)(the 10/8/96 FoolPort recap wrote on the subject). Those money managers have been wrong thus far, as the stock rose above $20 again in late September.

In October Iomega announced earnings stronger than anticipated. The estimates called for 6 or 7 cents. Iomega earned 9 cents, even in the slow summer. (The Iomega board had been careful to not let any "whisper numbers" surface this time around). Business was going well and Iomega was preparing for the big holiday season. The stock was in the $21 to $26 range at the time and has stayed there, while moving from the Nasdaq National Market (IOMG), to the New York Stock Exchange, symbol IOM. The company switched exchanges to help lessen the volatility of the stock -- which appears to have worked initially -- and perhaps as an increase in stature.

In about eighteen months Iomega had shipped 3 million Zip drives. In November of 1996 the company won awards for both Zip and Jaz products, again, and announced it was making a new, much smaller Zip for lap-top computers. Iomega also introduced a new technology called "n-hand," which it states could revolutionize portable computer storage technology and others areas, too, such as digital photography. N-hand will be available in 1997.

As of November 22nd, 1996, the stock was at $22 1/8 ($132 sans splits), up 175% on the year, and up 778% for the Fool since May of 1995. The Motley Fool recently opened Iomega folder number 148, representing almost 67,000 Iomega messages posted to date.

Iomega is on a run-rate to score well over $1 billion in sales in 1996, about 7 times sales of 1994. With sales up at least 7 times in two years, the stock being up a bit more than 7 times itself does not seem crazy. It actually makes perfect sense. It has been a brilliant investment, in a company that has been run brilliantly itself.

Of the Iomega experience, MF Chiros wrote, "...The power of fundamental analysis kept me in Iomega through many wrenching falls..."

While long-time Iomega follower Bigfootmm (Michael), wrote of his experiences online, "I have been in business all my life as an employee, a business owner, and finally as president of a publicly traded company (now retired). In the year and a half that I have been a Fool I have learned more about business in so compressed a period than in any other time in my life."

While David Gardner summarized on Iomega, "We called in the financial statements, did our due diligence, and bought. We've never traded the stock once, and in some senses regret the volatility... though that's fairly irrelevant anyway to long-term shareholders like us."

Tom Gardner shared thoughts to the effect that the most important part of the early Iomega story, to him, had nothing to do with money, but with the community that formed itself around the stock -- a community of strangers who in many cases became friends; the value of a community is lasting, of course, and more important than any underlying stock action.

Still, Iomega has proven to be many investors' most winning stock, and perhaps will continue to outperform. The existing heavy short position (about 21% of available shares) proves that many still think differently; but many Fools wouldn't bet against CEO Kim Ewards and the company in general. Iomega has nearly put SyQuest down for a dirt nap, and arguably has the portable storage market locked. Meanwhile, it is now able to open other, exciting markets with new products, such as "n-hand."

Of course many investors bought the stock much higher and later in the game. That may be unfortunate now, but if they bought for the long-term, and have held, they will very likely be rewarded in the future. In this regard, though, people should at least consider where they are entering an investment "story" before buying . When in unusual circumstances, investors should question at what point in a given story they are entering a volatile investment. Those who stepped up to Iomega in May as the stock had literally soared 4000% from a year before could have seen the very possible danger. The online medium is no different from any other in that it moves forward with time, and the time that has gone behind it, and the events played out in that time, should be considered when investing in certain stocks, especially stocks with big stories and violent moves, whether found on or off-line.

Finally, all this started from a brilliant company vision, or two company visions, actually... Iomega started to do the right things, and some American investors began to take notice and to talk about it together, from their own homes. It all began with one simple Fool Iomega board, and one simple message, which probably went along the lines of, "Hey, have you seen Iomega's new Zip drive coming out this year? It looks incredible..." and that message was probably followed by a message along the lines of, "This company is a dog..." -- and the great debate began. (Unfortunately, the original ten or so Iomega folders appear lost forever, sucked deep into a cyber-blackhole...).

Frequenter and keeper of the Iomega board, Jean Macaulay, known online as MF Jeanie, summed up beautifully with this:

"One incident that stands out in my mind was a fascinating piece of sleuthing done last May. Late one night a relatively unknown poster by the name of either IEatToast or EatEggs (something like that) dropped a one liner in the message folder to the effect that IBM was a new OEM for the Zip. It went ignored for a couple of hours until another, more recognizable poster, added the same message and attributed it to an obscure item in Computer Retail Week. Suddenly everyone jumped on this -- arguing if such a publication even existed -- one member went out to an all-night news stand looking for the magazine, another posted that yes, indeed, such a publication existed and was a reputable magazine; throughout the night the buzz increased until, finally, in the early morning hours (before market open) at least two people had the magazine in hand and reported word-for-word the quote by an IBM manager that they had a deal with Iomega.

"It was many days before the financial media picked up on this -- and even then, I always felt they got their tip from reading our folder. This is when I realized the unbelievable advantage we have in ferreting out and disseminating news. We have a few hundred "stringers" at work across the country in dozens of different fields of influence... all with their radar on.

"No financial media or brokerage firm could ever hope to have such concentrated research going on for just one company. Each MF folder does just that. Therein lies the New Age."

- November 24, 1996

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