What does it mean when the CEO of a money-losing company jumps ship unexpectedly? Drugstore.com (NASDAQ:DSCM) investors thought it was bad news yesterday. Shares dumped nearly 38% of their value on Friday evening's announcement that Kal Raman, who was also the company's president, is leaving. The company wasn't completely stunned by the news: It at least managed to get a press release out, unlike, say, Landry's Restaurants (NYSE:LNY), but investors nevertheless took the news pretty hard.
Did they overreact? Possibly, as there's little going on at the company -- above the surface, anyway -- that investors weren't already aware of. The Amazon.com (NASDAQ:AMZN) partner did say in a separate Friday release that it expects 2004 revenue to come in slightly lower than it projected back in January because, among other things, of its vision business. (The company bought privately held and profitable Vision Direct in November.)
Full-year net losses may now approach last year's $18.7 million figure -- management originally hoped to get them below $5 million -- and the company is now projecting an EBITDA loss of up to $4 million where it had previously forecast $4 million above the waterline. But revenue growth is still seen booming some 40% year over year. The company is taking it on the chin as far as profits go, as it's providing free shipping on many orders and pricing aggressively in many categories.
There are plenty of reasons for investors to pause when looking at this firm, but for those who are comfortable with Drugstore.com's plan -- and the reduced rate of progress toward profitability management now foresees -- it seems surprising that investors reacted so strongly today. The company is in a decent financial position and should, based on Raman's past compensation, be able to attract an experienced replacement for the CEO.
In the end, the biggest shock to the system seems to have been the surprise at Raman's departure. As one who believes investors deserve orderly succession whenever possible, I can sympathize with their pain: If nothing else, investors deserve to know why the CEO's departure was so unexpected in this case.
Drugstore.com's partner, Amazon.com, is a Motley Fool Stock Advisor recommendation. To learn more, sign up for six months with a money-back guarantee.
Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story.
