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Wednesday, March 12, 1997 Iomega was down $1/8 Tuesday, closing at $15 (-0.83%) TODAY'S RECAP: CEO Kim Edwards gets a raise, Iomega increases the number of new job openings, Exabyte issues news about its Eagles Nest Zip including a cordless, portable Zip drive, and Apple indicates to their dealers that Zip is obviously a desired peripheral. With all these signs that the company is on track to meet its stated goals of growth and market penetration, Iomegans still fret over the weakening stock price. To read complete details on the Exabyte news release, go to Keyword: Company News and search for Iomega. 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++ PaulL73 offers an opinion of the Eagles Nest storage products.
And now, the Best of the Board...Started 12:01 am ET 3/11/97:
1++Subj: Re: GOOD NEWS BUT DOWN
<> more space than one 5.25 inch bay on the box is pretty intriguing. (Sounds a little like...the Bernoulli box come back to life; maybe Iomega and Exabyte should merge.) And it's interesting that Exabyte, which I don't know much about, seems to ALREADY have had its nest feathered for the LS-120 and had to add the Zip to keep pace with Zip's huge sales and marketing advantage over the LS-120. And the deal means more disks will be sold. And even though good news seems to mean nothing positive to Iomega's share price any more, it looks like the stock is going to finish unchanged or down an 1/8 only, so maybe it softened another otherwise inexplicably tough day. There is no negative spin on this announcement, but y'all go ahead and take a shot at it. FWIW Paul Loop
2++Subj: Pricing Iomega
<> However, it could well be worth something in the future and therefore has an option value associated with it's future contribution to the company and its stock price. Now, your problem -- and mine -- is we can't come up with any plausible number for what that "maybe" might be and therefore we can't discount that number due to its uncertain. Indeed, depending on how big the number is, we'd probably use a higher discount rate to determine its "present value." If, for example, Iomega sold 1 million n-hand drives for $49 each and sold 2 million disks for $5 each (wholesale), the value of the product would be $60 million or so in a given year, peanuts for a company Iomega's size unless the margins were truly exceptional. However, if the market for this thing is 10 million, and the tie ratio is 5:1, then the number suddenly looks likes $750 million in a given year. That kind of variability makes guessing just that -- guessing. If I were trying to value Iomega using a "products" model, i.e. what is each product worth, then I might want to figure out the market for digital cameras, PDAs with storage devices, Nintendo 32-bit handhelds (a new product on the horizon that Iomega had better win a contract to sell n-hand drives for), etc. and then guess at how much of that market n-hand and Iomega might realistically garner. I might also note that digital photography will almost certainly obliterate non-professional film-based photography within 10 years, but that those disks would then be reusable and therefore tie ratios might be less-than-extraordinary (2 per user per year?!?!). I, personally, value Iomega using price-to-earnings and earnings growth rates and here's what I get: 1997 earnings will be 50% higher than 1996 earnings (70 cents on 47 cents). Note than I am intentionally running 10% below the low estimate on First Call to be conservative. I also believe that, given the recent rise in Zip SKU penetration, Iomega is executing its plan and is more than 50% likely to win the war to replace the floppy, albeit only a little be more than 50% likely. Because of this I believe earnings will be close to $4/share 5 years from now. From 70 cents to $4 is a big leap in five years... I'm sure Excel could tell me how big in %age compound terms. Instead, I'll use 50% as the 5-year EPS growth to yield:
1997 - 70 cents This shows that while I believe my $4 figure, I'm running conservatively beneath that with 50% compound EPS growth. That would imply, with 160 million shares outstanding in 2001, that I believe Iomega will earn $563 million. If there are 100 million Zip drives out there in 5 years, this figure should be easily obliterated with $1 per Zip disk net profits and 3 disks sold per user per year.... That alone would yield *net profits* of $300 million, or half the figure I'm targeting... Obviously, if the Zip has won the war, there will be closer to 200 million Zip drives in use -- or even far more. And that could yield net profits of $1.2 billion if it turns out the figures are really $1.50 net with 4:1 tie ratios. Anyway, the point is with Iomega's other businesses making profits -- which they will or they will be history -- a company that owns the floppy replacement is likely to make at least $500 million in five years, perhaps 2 or 3 times that. Therefore, using 50 as the long-term P/E, since it corresponds with a plausible long-term growth rate, I price Iomega at 50x 1997 earnings, setting a price target of 50 x .70, or $35 for year end. I am not a professional analyst, of course, but I think my logic bears some interest. If I am basing this on a 51% probability -- Zip replaces floppy -- shouldn't I discount the scenario below $35? Well, no, because to hit 70 cents, this years Zip sales will have to be pretty substantial, well over 6 million I'd guess, given declining drive prices. That would increase the likelihood of the scenario that much more and therefore make the number more comfortable. Given that Netscape was once valued at $6 billion on much more hype and much less reality, I'd be very comfortable with Iomega at $35 come year end -- especially because I believe that if the Zip does replace the floppy, I'll be way off: year 2001 earnings will obliterate $1 billion, making the stock worth $30-50 billion easily. More to come on today's price...
3++Subj: Re: Pricing Iomega Now, as for today's stock price, a close of 15, with trades in the 14s, it doesn't bode well for Iomega in the short term... Let's face reality folks, Ferrybooat1, the bear, is right about one things, the stock price has broken every support level anyone can come up it... Each round dollar has been broken. All real moving averages have been taken out on the downside, as TA morons would like to say. I don't buy TA at all, but I do know that psychology determines stock prices and the psychology of this stock sucks big time. If you buy now and it goes to 18.25 in 2 weeks, wouldn't you sell? I would, based on a 30% rule I've got: If the stock goes up 30% in the immediate aftermath of a buy, sell it. You can always buy again after the pullback. Now, the Fools don't subscribe to that theory and that's fine, but the Fools also don't move the market one iota, especially these days. For that reason, the stock is not likely to move appreciably one way or another without a shock of some kind. But barring a shock, the price is going to move down before up as more of the hopefuls are willing to give up and sell at any price. However, there is that tendency of the stock to move up in anticipation of earnings, which presents an interesting circumstance. Extrapolating the recent chart (from $18 to $15), suggests the stock could hit $12-13 before the "earnings rise" materializes. If the numbers for Q1 are at or slightly above estimates, without some extremely bullish comments from Kim Edwards, the stock gives up the "earnings rise" and returns to whatever price it was at in early April ($12-15?). If Iomega misses estimates, I'd be surprised if the stock held the double digits... It would almost certainly fall to $8-9, with downward revisions to 60-something cents and no one believe even those revisions. I'd then back up the truck and buy thousands of shares. But if the earnings were to beat appreciably, say 18 cents or better (was last quarter 19 before the charge?), then suddenly things begin to change. Now the psychology is the company is doing what they are supposed to. Imagine that scenario combined with a "positive shock" where OEM announcement come flying in from Toshiba (desktops and laptops), more from HP and/or Compaq, and anybody agreeing to use n-hand. Suddenly, the company moves from out of favor to in favor. Retail buying of the stock starts it rising and $20 is taken out with ease, as it has gone away many times before. Suddenly, that $35 by year end I posited is plausible becomes a natural progression from $15 --> $20+ --> $35. The June quarter confirms the trend with 20-21 cents and so on. What I can't do, of course, is tell you which of these scenarios will materialize:
1 --> Failure to meet estimates, disaster ensues, stock hits $8 I am pretty sure it will look like one of those, which of course is like predicting the sun will rise in the east tomorrow morning. I sold almost all of my position at $17.5-ish a ways back. Why? Because I felt the quarter would be dull, dull, dull until the "earnings rise" and I feared $12. Of course, at $12, I'm almost certainly a buyer, cautious at first, and then screaming with good news. As I said, I'm an overloader with any single-digit price on the stock because I believe it'd be due to temporary seasonal factors unless Edwards told me the company was blowing it. By the way, I am long 30 shares right now, due to an error in my sell order (oops!), so I have a position in the stock. I'm not dumb enough to be short, not yet bold enough to be long. Needless to say, I'm buying on good news even though the shares may cost me much more. $20 soon almost certainly, to me, means $35 by year end. For me, the milestones of import for the year are still entirely Zip related. I'd love to see Jaz do more for the bottom line, and it might, but the company's future is so intimately tied to the Zip its not even funny. Therefore, I want to hear about Zip sales (total to date, total for the quarter) and tie ratios (where are they at) and pricing (when do we see a permanent move to $149 and when do we see $99). I doubt Edwards will spill too many of these details, which is increasingly looking stupid. He is now sitting on stock worth less than half what he told institutional investors to buy it for a year ago and they, therefore, are not picking up shares at bargain-basement prices; they just don't believe the guy any more. There are two parts to honesty (1) truthfulness and (2) full disclosure. Ben is right about this: Edwards is not doing Iomega any good by being so damned cagey on the numbers; no competitor of the Zip is waiting to see if sales are +/- 20% from where they can already guess them to be. And, as for the wacked out scenario about using Zip numbers to hide Jaz numbers, either Jaz is doing disastrously, in which case Edwards is withholding a material fact from investors and Iomega will be slaughtered by Millberg, Weiss in a shareholder suit sometime soon (I doubt that) or competitors again know, generally, what Jaz sales are. I'd allow for withholding Zip and Jaz tie ratios so long as we hear the drive sales numbers, accurately... At least it's a start. I also think Iomega should start touting OEM SKUs by posting a list on their Web site and showing how many of the possible SKUs that represents. e.g., Hewlett-Packard, 2 SKUs out of 47; Compaq 1 SKU out of 70; Micron 10 SKUs out of 14 (I made those numbers up so shut off your flamethrowers). Remember, that SKUs in business lines, like Micron's ClientPro and Compaq's Deskpro and HP's Vectra are pretty much zero! For Dell and Gateway, this is tricky given the "all optional" scenarios they have and therefore somehow Iomega will have to get them to release the figures. Or better yet, it can release them itself. IDC tells the world how many computers they sold, Iomega knows how many drives they bought. The math, allowing for inventory adjustments, is trivial. Iomega should chart the progress over time and I'm sure it'd be impressive. SKUs are not increasing in the industry, if anything they're falling slightly. And the rise from zero to 40 or so would be quite impressive on a chart. In fact, it might show that at current adoption rates Iomega would be at 100% of SKUs in a short period of time. [[Aside: At current hiring rates, all Americans would work for Cisco within a decade or so, so take all that with a grain of salt.]] Why is this not obvious to Kim Edwards? Probably because the guy is busy running a company and hasn't taken time to nurture his Wall Street relationship. Too bad, because the great stocks of the decade-plus, like Microsoft and Cisco, are great in small part because they do manage those relations. Only recently, when Cisco held its bad news for the end-quarter conference call, did the market begin to sour on it. I thought Edwards got all this: be predictable, beat estimates by a little, give enough guidance so that estimates are predictable so you know how to beat them, etc. etc. He let estimates run too high early and seems now to have managed them down enough. Now, he must beat them, meaningfully but slightly, quarter after quarter. I'd call Q4 1996 the first win on that front. Q1 1997 needs to be similarly grand or the consequences will be unpleasant for Iomega's stock price. Kim Edwards works for the shareholders and the shareholders have a right to know why he isn't supporting the stock like he ought to. I'd expect tough questions at quarter's end and at the annual meeting. I'd also expect, and demand, a lot more openness. If you (we?) get what is needed, in terms of results and information, the stock will do quite nicely, thank you. It will see $35 this year, $50 next year, and $75 the year after that. No joke.... I think we learn more by the day, but the institutional investors and brokerage houses aren't going to care until the results prove the plan is being executed. 10 million Zips by September, my rallying cry, is, in fact, an outstanding benchmark for determining whether the plan is being executed. It means Zip sales would essentially double year over year. If the growth rate of Zip sales were to fall from 400+% (in 1996) to 100% in 1997 and down to 50% for 1998-2001, those 100 million Zips would be real by 2001 (give or take). And, again, I believe that if 1997 delivers 100% sales increases, those growth rates won't actually slow because the world will "tip" to the Zip *standard*. One man's opinions, Mark
4++Subj: Re: Pricing Iomega <> I believe all of that is obvious to KE. He has shown that he is quite sharp at cultivating the Iomega image, and was equally adept at transforming Iomega, (with lots of help), from a has-been second-rate company into what you see today. I wouldn'y have put $1- into Iomega in 1994. As for nurturing the Wall-Street relationship, this is also very important. But when you have a $2billion market cap, I wouldn't put it number one, or even two on the high-priority list. The company must agressively continue their expansion into other markets, they are. The Ditto has scored some gains over the last few months, and the ZIP continues to be a hot seller. I agree that it would be nice if KE would break down the components of revenues and earnings by product, but I can wait until 3rd quarter. What is important now is to keep the ball rolling. Get the ZIPS included in as many PC's and MACs as possible. Be as agressive as possible this year. 1997 is the year that will determine Iomega's future, not the last 2 years of hard groundwork. Iomega is still fully-valued now at $15, leave this issue alone and continue to build on future value. I believe that is what Iomega is doing. Press releases on new products and deals won't move this stock, only hard results will do that. I am quite sure that if IOM was selling at $30 next summer (a 100% gain), that most investors, and Wall-Street would be elated. Keeping Iomega away from prime-time now may in fact help future stock value. Iomega can work at cultivating the necessary financial relationships later on in the year. I for one do not believe that should be top priority now. But some additional figures and ratios would be nice. By the way, if I were KE, I'd still look into a Syquest deal.
Steve Hinchey ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
5++Subj: Re: Iomega(IOM)#174 Looks like IOM is a pretty big hit with TXN. They made it in the 1996 annual report. They even have a picture of an external Zip drive with a blurb and headline that says "focal point". TXN is talking about areas of future growth with DSP's, networking, and mass storage. " Gotta lot of stuff? Zip it in an Iomega Zip drive. Iomega brings inexpensive storage technology to computer usres.... " TI's mixed signal portfolio enhanced by the recent acquisition of SSI helps bring Iomega that inexpensive technology to you. With the information age upon us, we are all going to have more stuff. Iomega and TI can help you zip it up." Looks like somebody is impressed.
6++Subj: Re: Zip In Mac System Apple's current dealer bulletin (weekly communication to Apple authorized dealers) states that due to the popularity of the Zip models (Performa 6400 w/ Zip which is a Circuit City exclusive, and PowerMac 8600) Apple is now offering internal Zip kits (internal Zip plus machine specific bezel) for all of the current systems and many of the discontinued PowerMac models (7500, 8500, 9500). Bill
7++Subj: Re: Pricing Iomega/Rogo <>I think we put IOM under more of a microscope than any other company is subjected to. Those institutional investors got stock at $6 less than the market price at the time, & could have flipped easily. What did Kim edwards tell institutional investors that has not happened? What did he say that they cannot believe now? Sales grew tremendously in 1996. Competition was nonexistent. They spent money on R&D which investors like. <> I think KE has been totally honest. I would like to see more info, but again, how many companies do you see out there who have legions of shareholders demanding so much info? I think he has been very straightforward on all of his conference calls. <> He really does need to find some support on the street. But I think this board has a good bit of blame for our obnoxiousness last year. Media also to blame because they have not reported on Iomega truthfully. And I'm sure the "I am filthy rich" buttons didn't leave too good a taste in anyone's mouth, either. But that is all psychological. The fact is, they have done a great job of running the company. I just think investors have no interest in hearing it. But stocks follow earnings eventually. If business keeps going well, the stock will go back up. <> KE doesn't guide estimates. Lots of companies don't guide estimates. He didn't "let" estimates run too high early. He didn't do anything regarding estimates. Those are the analysts fault. And this is the case with most stocks. Analysts can't raise the estimates fast enough when a stock is going up and can't lower them enough when a stock is going down. I think IOM's business model has so much uncertainty in it that it is hard for them to guide estimates. <> I've thought a lot about this. The bottom line is, the company has done extremely well. If you owned this stock a year ago and it slowly, steadily proceeded from the $7 then to the $15 now, you would probably be happy with your investment. As much as I'd like to pin the blame on KE, analysts, inside sellers or whatever, in the end the blame for not selling higher is on me and only me. I held at higher levels because I envisioned a strong company with a very bright future with strong earnings prospects going forward. That has not changed. I thought the valuation would remain fairly high, but that is psychological, and I did not sell at the high P/E. At 50, the stock was at 50X 1997 ests of $1.00. Now the stock is a 60% less P/E multiple (20X) on a 23% less earnings estimate $.77. I actually thought the stock would pull back to the mid-to-high 30s short term, but that the growth prospects would make the market keep the stock at 30-40X earnings. That is MY fault for not selling. The company has done a great job. Also, look at how excited the market in general has been about small-mid cap growth stocks. Not much. <> And where the heck would these targets be coming from? << No joke.... I think we learn more by the day, but the institutional investors and brokerage houses aren't going to care until the results prove the plan is being executed.>> I agree. And those results will have to be good enough to get the market to pay more than 20X earnings for the stock. But I don't think the company can come out with a press release that says, "Hey, gang, our stock is real cheap." Name one other company that does that, ever. I would like better coverage on the street. However, I think KE's last conference call was great. Any potential investor could get a copy of that and see how well the business plan has been going. In short, it does suck that the stock is this cheap. Guess whose fault it is for not selling higher? Only the investor. I want to be pissed off at the company, too. But they have run a great company. Burt
End Report. Posts covered through 12:01 am ET 3/12/97. _______________________________
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