April 26, 2000 10:45 AM PDT
Drkoop.com catches breath after cash scare
Shares of the Internet-based consumer health care company closed today up $1.25--or 53 percent--to $3.59 on the Nasdaq, after trading as high as $5.37 earlier in the morning.
Drkoop said yesterday that it will report lower-than-expected earnings next month and that it has about five months of cash remaining.
The Austin, Texas-based company attributed the lower-than-expected earnings to a shortfall in advertising revenue and an increase in overall expenditures.
In an effort to cut costs, the company restructured its four-year deal with America Online, which has taken a 10 percent stake in Drkoop. The health site restructured a similar agreement with Go.com.
The company also said that it has retained Bear Stearns "to assist it in exploring strategic alternatives."
Trading was halted in the company's stock before the announcement. The shares were last trading at $2.34, up 6 cents for the day but down from a 52-week high of $45.75.
Drkoop draws a lot of visitors, which may make it an attractive acquisition for a commerce site looking to build its traffic numbers, said Jupiter Communications analyst Rachel Terrace.
What might scare potential buyers is the way in which Drkoop has struggled to hold readers' attention. Too much content is licensed from outside sources, Terrance said, and that has turned off advertisers. Moreover, the company relies too heavily on advertising revenue, she said.
"Drkoop didn't diversify their revenue streams enough to include commerce," Terrance said. "This is an old story. Content sites can't survive on advertising alone."
The company said it anticipated posting a first-quarter loss in the range of 80 to 82 cents per share. First Call said the company was expected to post a loss of 52 cents per share for the same period.
Today's announcement marked the latest in a string of bad news for the company. In an annual report with the Securities and Exchange Commission released last month, the company said it had "sustained losses and negative cash flows from operations since its inception," posing a threat to its future as a business.
PricewaterhouseCoopers, the company's auditor, said in the filing that Drkoop's financial data has raised "substantial doubt about its ability to continue as a going concern." In its defense, management said it intends to raise working capital through additional equity or debt financing in the upcoming year, according to the filing.
Drkoop, which posted a much wider 1999 year-end loss of $2.27 per share compared with the previous year's loss of 75 cents per share, also has faced several legal problems in the past few months. Adam.com, a provider of online medical and health information, recently settled its licensing lawsuit against Drkoop, which it had accused of improperly selling Adam.com's medical encyclopedia over the Internet.
The company ran into other legal troubles involving securities regulators. One Drkoop director was charged with violating corporate insider trading rules, and other executives were charged with breaching federal security regulations that prohibit directors from selling company stock within six months of purchasing shares, the company confirmed at the time.
Other e-commerce stocks have been hit recently.
Once-heralded Internet start-ups Peapod and CDNow have acknowledged running short of cash. Online music seller CDNow said its auditor, Arthur Andersen, has expressed "substantial doubt" about whether the company can continue to stay in business, according to an SEC filing.
And after losing its chief executive and a planned $120 million investment, online grocer Peapod said it was soliciting takeover offers. Earlier this month, Peapod received a $73 million investment from international food provider Royal Ahold.