Earthlink and the Power of Cashflow

July 17th, 2008 by · 4 Comments

NSP Strategist at Rad-Info had a post Monday about Earthlink’s travails, which prompted me to go and see how their stock had done lately.  What I found actually shocked me:  the stock has come back up.  Not way up, but I had expected a collapse to match the disasters they have been through lately.

When Earthlink saw the end of dialup approaching, they decided to take their cashflow and use it to fund a risky multi-pronged effort to pole vault into new industries.  They put one pile of cash behind Helio, another behind municipal wi-fi, another behind two flavors of VoIP plus some DSL resale, and yet another behind New Edge Networks.  The failure of this strategy has been spectacular, Helio was just sold for a pittance, municipal wi-fi has imploded, VoIP has been a disappointment, and DSL resale just isn’t enough.  The only bright spot remaining of the multi-pronged effort is New Edge, which hasn’t failed, but hasn’t set the world on fire either.  Dialup keeps shrinking, but keeps generating positive cashflow.

When they hatched this plan, their stock price was in the $10 range.  Two weeks ago, after all this, their stock price touched $10 again in late June.  And that just goes to demonstrate the power of cashflow.  In the tech and telecom sectors we are often mesmerized by technology, by the promise of new things and how they will change the world.  But in the end it is cashflow that matters more, even decaying cashflow from a product we dismissed years ago.  From a business perspective, Earthlink seems to have few remaining prospects and no supporters, but their shareholders are still ok – could have been better, but hey so could the rest of us.

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