It's not news that EarthLink
Analysts may have expected EarthLink to report a profit of a penny per share, but the company reported a $0.02 per-share loss instead. Sales increased 4.5% to $331 million, which was also short of analysts' expectations. If you consult our Fool by Numbers on EarthLink, you'll also see that margins fell across the board.
EarthLink experienced a 55% decline in free cash flow to $20.2 million for the quarter. Indeed, the company continues to plow money into its transformation and growth initiatives into broadband, mobile, and voice applications -- and its cash reserve continues to dwindle (down 61% to $158.2 million on a year-over-year basis). These strategies are nothing new, of course -- check last quarter's results.
On the bright side, EarthLink said broadband revenues increased 36.7% to $149.4 million, with a 20% increase in broadband subscribers to 1.9 million. Narrowband defections continued -- as expected -- with sales down 16.3% to $150.8 million and subscribers down 8.8% to 3.3 million (although its bargain dial-up service, PeoplePC, helped offset some of those losses).
There are many people who seem to think that EarthLink is a bargain now, but I have my doubts. True, a P/E of 10 is low for a tech stock, but EarthLink has its work cut out for it, as dial-up subscribers dwindle and it has to duke it out against tons of broadband competitors -- not the least of which are cable giants like Comcast
Meanwhile, like Time Warner's
True, EarthLink has been able to use cash from its access business to help it pay for capital expenditures associated with these new initiatives. Although it doesn't have any debt, this is all a drag on profitability, and its PEG ratio of 1.5 certainly doesn't imply it's a value at this point.
The protracted period of angst for EarthLink is reflected in its stock chart. Although there was never any question that EarthLink had to transform its business, the jury's still out on how successful its array of new initiatives will be in such a competitive environment, and I'd say EarthLink is still a mighty speculative stock for investors these days.
For more on EarthLink, dig up these articles from the Foolish archive:
- EarthLink was cut short, according to our Fool by Numbers.
- Last quarter left some wondering if EarthLink can get it together.
- Revisit EarthLink's quarterly results from last April.
Alyce Lomax does not own shares of any of the companies mentioned.