EarthLink's (Nasdaq: ELNK) struggles continue. The company's fourth-quarter numbers may have included some interesting tidings, but overall it's hard to be terribly optimistic given the fact that the company reported a loss and expects more losses to come as it continues to ramp up its new offerings.
The communications company reported a loss of $24.8 million, or $0.20 per share, in the fourth quarter, compared to net income of $29.2 million, or $0.22 per share, this time last year. In good news, EarthLink's revenues increased 5% to $328.2 million, including a 35% increase in broadband revenues. As has been the case for quite some time, though, narrowband revenues declined, this time by 15.8% to $145.2 million. There's nothing new there, of course.
EarthLink's wireless venture Helio, a joint venture with SK Telecom (NYSE: SKM), is a mixed bag. It has gained 70,000 subscribers since its launch last May, but Helio's net loss was $191.6 million, with EarthLink's share of that loss being $84.8 million. EarthLink is very enthusiastic about the service's potential given the adoption rate so far, but EarthLink will continue spending to boost subscriber growth.
Free cash flow for the quarter was $0.8 million, a 98% decrease on a year-over-year basis. EarthLink's cash reserve dropped 6.5% to $394.8 million, and let's not forget it took on convertible debt recently (yielding proceeds of $236.7 million). EarthLink's press release didn't include full balance sheet data nor a cash flow statement, so investors will have to wait for the company's annual 10-K filing with the SEC to dig deeper.
As for its outlook, EarthLink said it expects sales to be flat to slightly up in 2007 at $1.30 billion to $1.35 billion, with a net loss between $110 million and $150 million. In addition to Helio, EarthLink still has municipal Wi-Fi in its sights -- it said it expects to significantly expand those areas and increase marketing of such services.
I've often thought it was arguable that EarthLink stock had a speculative bent for investors as it tries to evolve past its old-school dial-up legacy. There's some logic in trying to get into more service offerings than merely broadband, since it faces such formidable competitors, with telecom companies like Verizon (NYSE: VZ) and cable companies like Comcast (Nasdaq: CMCSA) offering consumers high-speed connections. However, EarthLink's capital expenditures just keep on mounting as it tries to offer these many services. Sure, it could be a bright future, but there are still many unknowns.
I haven't been too terribly bullish on EarthLink in the past, wondering whether it's attempting too much in such a competitive landscape. At any rate, it's obvious that this year EarthLink is going to be in "investment" mode -- some might call it "cash burn" mode depending on how well they think it might do over the long term. Even with today's drop in price, I'm certainly not convinced EarthLink's a bargain at the moment, with losses expected in the year ahead and a lot that remains to be seen when it comes to its ability to compete against so many rivals with its nascent services like Helio.
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Alyce Lomax does not own shares of any of the companies mentioned.
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