Wired’s major asset is ultratrendy Wired magazine, which has lined up an impressive 300,000 subscribers since its first issue in 1993. Wired also owns the HotWired and Suck Web sites; a nascent book-publishing business; a proposed TV show called “The Netizen,” and a search engine, HotBot, that competes with about a zillion similar devices to help people surf the Internet.
Clearly, an interesting company. You have to love people who have created a hot magazine and consider attitude a corporate asset. But if Wall Street can actually sell this stock at its top offering price of $12 a share, the company will be valued at half a billion dollars. That’s beyond attitude, that’s insanity. It would sure be a nice price for an outfit that started less than four years ago with about $1 million in seed capital. And that has no idea when, if ever, it will become profitable. Or whether some of its businesses are financially viable.
Before you online chat-room types decide that skepticism from an aging print dinosaur like me is a sure sign that Wired’s price is heading into the stratosphere, let me offer you a guided tour through the Wired prospectus. That’s the boring, legalistic document that Wired filed with the Securities and Exchange Commission on May 30. Read this and you see that for a self-styled cutting-edge, 21st-century company, Wired is surprisingly mundane.
For instance, Wired, which preaches the digital revolution, spends most of its magazine-promotion budget to send out junk mail. One of its first scheduled books is a reissue of a 1967 screed by the late communications guru Marshall McLuhan. And, for the irony lovers among us, consider this. Wired’s magazine and Web sites sneer at anyone they consider less than cyberperfect, but the prospectus says Wired is having trouble with its HotBot search engine and hadn’t yet fixed it.
Wired wouldn’t talk about this stuff or anything else because it’s in SEC registration. So I’ve based this article on my reading of the prospectus and on a Wired news release. Before we proceed, some disclosures. NEWSWEEK, My employer, competes with Wired in some areas. And my colleague NEWSWEEK technoczar Steve Levy writes for Wired and is mentioned in the prospectus as one of the reasons folks should take the stock seriously. With luck, this will scare NEWSWEEK into giving him a raise, and he’ll kick some of it back to me.
And now to the tour. Let’s start where skeptics usually begin: in the footnotes of the financial statements at the end of the document. Guess what? We learn that as of March 31, “the company was not in compliance with certain nonfinancial covenants” of its $6.5 million credit line. That’s usually not a sign of robust financial health. Nor is the March 31 “working capital deficit” of $5.6 million. This means Wired had more short-term obligations, such as bills to pay, than short-term assets, such as money. You can’t tell how serious either problem is. As I said, the company won’t talk.
So the prospectus doesn’t tell us whether this is a company that has to go public or go broke. One good sign is that last month, Wired sold $12.5 million of stock to sophisticated investors in a private sale. The cash infusion, apparently in the works for weeks, presumably solved Wired’s short-term financial problems. And while the $10 price is close to the current asking price, remember that some of the buyers–including the Newhouse publishing empire and Nippon Telephone & Telegraph, Japan’s national phone company–do business with Wired. So unlike you, they get a business benefit from buying its stock.
Wired, which ran through almost $5 million in the first three months of this year, says that if it succeeds in raising about $50 million with this offering, it will have enough money to last through 1997. After that, it may need more dough.
On the surface, Wired magazine is making tons of money, with $28.6 million in revenues and only $16.1 million in expenses in the 12 months ending March 31. But look deeper. Those costs don’t include $6.8 million it spent on direct marketing–a polite term for junk mail–to hustle up subscribers. And the company spent another $4.4 million for promotion expenses and $7.8 million for corporate overhead. The magazine generates more than 90 percent of Wired’s revenues. Charge it with some of these corporate costs, and it’s probably about breaking even.
Web sites: The nonmagazine businesses consist largely of hopes and dreams. Take Wired’s Web sites. Wired sets these up, invites cybertypes to visit them and tries to make money by selling ads. Good luck. A zillion publications, including NEWSWEEK, are in that game. But it’s not clear that anyone will ever make money on it. Ditto for the search-engine biz. TV and books? Who knows?
Now that the tour is over, how much would you pay for a magazine and some dreams? Including the 5.5 million proposed new shares and another 4 million under option to employees, Wired would have 41.25 million shares. A $12 price thus values the whole company at $495 million. Seems like a lot to me. The big winners would be the company’s cofounders, Louis Rossetto and Jane Metcalfe, whose holdings would be worth $71 million and $69 million, respectively. An early player, MIT’s Nicholas Negroponte, would have stock worth $29 million. And he’s already parlayed this investment into a Wired column that begat a best-selling book. The Newhouses, who have invested $4.5 million, would own $50 million of stock.
I personally wouldn’t touch Wired at anything resembling $12. But I’m not telling you that the stock won’t fly. Wired, after all, is an Internet issue with a real magazine and a lot of hype. Most Internet companies have no real product yet boast astronomical stock prices. But Wired may be too late. The days when you could make money mindlessly buying Internet stuff or anything hyped in online chat rooms seem to be drawing to a close. Iomega and Presstek, two chat-room favorites with insanely high prices, finally seem to be cracking. America Online, which we discussed a few weeks ago, has been pounded, too. It’s been a lot of fun to be cool and buy chat-room stocks and have paper profits and laugh at people like me who insist that investing successfully takes hard work. Attitude is real easy to come by. Long-term success is a whole other thing.
