As Theglobe.com Turns

Theglobe.com.com says it will miss third-quarter revenue and earnings estimates due to -- what else -- a slowdown in online advertising. The once high-flying online community site will also restructure its business to address the causes of its poor performance. But such announcements have been on the rise in recent days as companies of different sizes and degrees of success are eager to demonstrate they've gotten the wake-up call of "new market realities."

By Nico Detourn (TMF Nico)
September 29, 2000

Shares of theglobe.com (Nasdaq: TGLO) opened below $1 Friday after the company warned of a revenue shortfall and steeper losses in the third quarter. The company, which operates and develops online communities, blames the poor performance on the slowdown in online advertising.

For the quarter that ends tomorrow, theglobe.com expects to report revenues of between $6.1 million and $6.4 million, compared to analyst estimates of $11 million. Loss per share is expected to grow to between $0.37 and $0.35, compared to estimates for a $0.28-per-share loss.

Theglobe.com is probably best known as a symbol of dot-com mania because of the splash its initial public offering (IPO) made. After first withdrawing its IPO due to unfriendly market conditions, theglobe.com started trading in November 1998 and scored the biggest one-day IPO percentage gain ever, a record held until the VA Linux (Nasdaq: LNUX) IPO in December 1999.

Theglobe.com opened its first day at $9 and shares quickly hit $97 -- up 978% -- before closing at $63.50. Inexperienced investors who bought a ride on the high-profile IPO realized early on that while the stock indeed skyrocketed as expected, their tickets had simply exploded at prices the stock would never see again. Their real-time tales of woe can be read on the Fool's theglobe.com discussion board.

Preliminary restructuring initiatives
Word of the theglobe.com's dismal third-quarter results came packaged at the tail end of an announcement of "preliminary restructuring initiatives... aimed at better positioning theglobe.com to capitalize on the expected long-term growth in advertising spending." Said CEO Chuck Peck in a press release: "I believe more than ever that there is significant value within theglobe.com's model that has yet to be realized.''

The restructuring will initially focus on theglobe.com's advertising sales department, whose new vice president, Mark Martiak, was most recently VP of Media Sales at Engage (Nasdaq: ENGA). Additional sales representatives will be added "to more deeply penetrate three key constituencies: traditional advertising and direct marketing agencies, online advertising agencies, and large accounts," the company said.

Sales emphasis will be placed on targetable properties within theglobe.com Network, especially at games.theglobe.com. The company also said it plans to license its "community tools and expertise" to generate recurring revenues and diversify its revenue base.

The song remains the same
Though inescapably acknowledging problems, CEO Peck tried to strike an upbeat note. "Despite a near-term slowdown from which few have been immune, we agree with those who see bright prospects for future growth in online advertising spending," he said, looking forward to offline companies recognizing the value of targeted online ads.

Peck has conducted a full-scale review of the company's business since joining it as CEO last August. He said that as Internet usage and audiences grow, "it is only natural that our strategies -- those which aim to capitalize on our powerful, leading position in the community space -- evolve in response to new market demands.''

Evolving a business in the face of changing markets and demands is, of course, part of a company's life cycle. Declarations of the intention to do that have also been on the rise in recent days as companies of different sizes and degrees of success are eager to demonstrate they've gotten the wake-up call of "new market realities."

The companies and their businesses change, but much of the song remains the same. As with theglobe.com, the online ad crunch is the most frequently cited culprit, just as restructuring is a favorite solution to setting the company "on a clear path to profitability." Rarely addressed, though, are questions about the business concept and the company's viability as an independent entity.

Two years after its big splash 'n' crash IPO, theglobe.com is already an old-timer among general-interest online communities. Media Metrix ranked the site in the top 130 for unique visitors in August, which, considering the gazillion sites out there, ain't all bad. Its share of online users is trending down, however, which won't make its path to profitability from an advertising-based business model any easier. And it increasingly seems that the main path this globe is on leads to its consolidation into a larger, hopefully more vibrant planet.

Your Turn:
As far as its stock goes, theglobe.com doesn't have too far to fall. But what might make it rise again? Is there an acquisition in the company's future? Share your thoughts on theglobe.com discussion board.

Related Links:

  • TMF Interview With theglobe.com Co-CEOs, Stock Talk, 3/4/99
  • theglobe.com, Post of the Day, 11/17/98
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