SAN FRANCISCO (CBS.MW) - What do you get when you combine the prospects of the Internet and homeland security in one public company?
A stock that displays exaggerated upswings that will surely be followed by exacerbated downswings. IPIX was among the many security stocks with brow-raising gains that could only be the product of a mania driven by emotion and news.
In the most recently completed year, IPIX relied heavily on hosting images for eBay . The world's biggest marketplace operator paid IPIX about $25 million last year for its service. Chump change for eBay, but a big deal for IPIX.
The problem is that eBay dropped its three-year relationship with IPIX as it opted to do the imaging itself. IPIX just lost 85 percent of its revenue in 2003.
Even if IPIX had $25 million in revenue to build upon, the company would be sporting a rich valuation. And, even with those sales, IPIX posted a profit of $1.4 million in 2003, which was mainly due to financial accounting for accrual of preferred dividends. Translation: The profit did not come from operations. About $1.8 million was recognized for the accrual of preferred dividends, which were sold in 2001 when IPIX raised $22 million in capital, said Farmer, IPIX's CFO.
The preferred stock is worth about 10 million common shares. When those preferred shares are converted, IPIX needs to have the money to pay preferred shareholders about 8 percent in annual dividends.
This year, IPIX will not have the eBay revenue. Rather, there is just a lot of hope, prayer and press releases keeping it afloat. Farmer stressed that making equivalent sales would be "challenging without eBay."
At a couple hundred million dollars in market valuation at this point, it's best to sit this one out.