Thursday, March 13, 2008

Global Voice - Is the CEO talking about Share Price ?

Interestingly, I have been keeping track of Global Voice's recent performance in terms of share price and also had a quick glance at its latest FY 2007 financial statements even though I had divested myself of this company some time back. It will always remain a lesson to learn for me as my original purchase of this company was not based on value investing principles, thus I use it as a benchmark as to how far WRONG I can be !

The CEO of Global Voice had, on March 10, 2008, issued a press release which specifically commented on the SHARE PRICE of the company. I will feature snippets (in quotation marks) of what was announced and my comments shall be in italics. Note that this is NOT a "whack-the-CEO" session, but merely to point out that Management should seriously consider building the business instead of worrying (to the point of being beleaguered !) about share price.

1) "confirmed that the board of the Company was unaware of any business, financial or operational reasons for last week’s decline in the share price " Erm, actually I did not realize that anyone had asked him to publicly comment on the sharp share price tumble. So why did he take it upon himself to comment publicly about the "sudden share price plunge" ?

2) "The board is therefore disappointed and surprised by the recent decline in the company’s share price " What I do not understand is why the Board has to care so much about share price ? It's as if they intend to raise funds through a secondary offering; that's the only time I can think of for Management to glance at the share price. Otherwise, please go about the business of creating shareholder value and concentrate on building the company.

3) "Measuring all business signed year-over-year to March 9th 2008, total number of agreements have grown 106% and total contracted monthly recurring revenues have grown 144% in value year-over-year." I did note that Management's focus is always perennially on revenues and order book flow. They have to realize that shareholders care about expenses and COGS as well and these are equally important in determining if the company can be profitable or if it can have enough cash to sustain its operational activities. I did note that capex requirements are high for a company like GV (which results in high depreciation and amortization expenses) and that they had raised funds through convertible bonds TWICE (which means very high financing costs and cash outflows).

4) "This early indicative performance, alongside the largest ever sales pipeline the company has had, gives us strong confidence in achieving the goals we have set out for the company in 2008." I did note that their goals included achieving strong growth in revenues, profitability and shareholder value in FY 2008. But how do you grow profitability when the company is not even profitable in the first place ? It boggles the mind when they make such a statement. If Management had any candour at all, they would address the problem of high costs and talk about turning the company around. I also noted that for FY 2008, they will be making "a major investment in their recently secured London network", which may mean more fund raising and more debt being issued. Somehow, I feel that the Management have yet to address the critical issues of high costs, depreciation and financing costs clearly enough. They previously mention EBITDA rising which is not indicative of the TRUE performance of the company, as you cannot afford to ignore income taxes, depreciation and amortization.

The whole point of this post is to remind investors that Management should not fret over "share price plunges", but instead just work on building the business, reducing costs and ensuring they have enough cash on hand without resorting to the debt and equity markets too often. Sometimes, growth can come at a price but when this price is too high, it may yet collapse the company.

I will post updates on Global Voice as a matter of learning as and when I see fit.

2 comments:

Anonymous said...

Are you still holding GV?

Will you consider buying at 7cents?

musicwhiz said...

Hi Anonymous,

No, I divested GV sometime late last year when they announced their second round of convertible bond issue. I was concerned that the company is chugging along on borrowed money rather than internally generated cash from operations.

I will NOT consider buying a company which is loss-making and which has no visible turnaround strategy. Am monitoring currently as a matter of interest and to learn from my mistakes.

Regards,
Musicwhiz