Quokka Downgraded

Calvin Kim
by Calvin Kim
Poor earnings and potential funding losses might spell doom for the sports site.

The post-Olympics glory info in which Quokka Sports (QKKA) basked after its NBCOlympics.com site took the gold medal in traffic has officially subsided.

On Thursday, the firm continued a two-month string of negative news byannouncing a loss of $0.35 per share on $9.1 million in revenue for the fourth quarter of 2000, missing already reduced analyst expectations for the quarter by $2.77 million, or $0.03 per share.

That news came on the heels of Merrill Lynch (MER) analyst HenryBlodget's downgrade of the firm from Accumulate to Neutral on January 9, saying, "Quokka's chances of breaking even before running out of cash are low, and we believe the company will have to secure additional financing if it is to remain in business."

Quokka's chances of securing that financing are slim, however, according to its earnings report. The firm made only $47.5 million of the $50 million in revenue that was required to comply with covenants on $77.4 million in convertible notes it issued in September, leaving bondholders the option to convert those notes to equity and thus ingesting a substantial chunk of the company.

The company's earnings release bluntly states: "It is expected that the audit report of the company's independent accountants on the December 31, 2000 financial statements will include a paragraph regarding the company's ability to continue as a going concern."

In the course of three weeks in January, Prudential Securities analystWilliam Lerner went from lowering his rating on the company to Sell toactually dropping coverage of the company. Lerner said he made this move largely because he became aware that Quokka had much less visibility on its long-term sponsorships and was much less likely to reach its revenue numbers for 2001. According to a Quokka spokesperson, "because of the uncertain marketplace, no analysts are guiding our business at this time."

On January 26, the dot-com deathwatch Website FuckedCompany.com published a letter from Quokka President and Chief Executive Officer Alvaro Saralegui that the site said had been leaked by company employees. The letter referred to three scenarios in which the company would remain afloat, all three of which would involve substantial layoffs at the firm. The first scenario involved paring the company down dramatically, while the other two involved a sale of the company's technology and media businesses. The letterconcluded: "Over the next two weeks, we need to dramatically change the size and composition of our organization utilizing input from many stakeholders."

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Calvin Kim
Calvin Kim

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