?Salon's independent accountants have included a paragraph in their report for the fiscal years ending March 31, 2002 and 2001 indicating that substantial doubt exists as to Salon's ability to continue as a going concern because it has recurring operating losses and negative cash flows, and an accumulated deficit.?
Salon, we hardly knew ya. Barring a miracle (in the form of yet another round of financing), Salon - one of the Bay Area's favorite progressive online web magazines - may go the way of Inside.com and that lovable Pets.com puppet. At its height, the company was trading at $15 a share, with a market cap of a cool $37.5 million. That was in July of 1999, when the radius of the Internet bubble was reaching its zenith. For one brief shining moment, Salon stock was actually a good investment, with nearly a 50% return on its offer price of $10.50 a share.
That was a long time and many logarithmic charts ago. The price of the common stock has fallen so far that the whole company is currently valued at about $900,000. As of this writing, a share of Salon is worth about as much as a two sticks of gum (7 cents). This kind of dramatic reversal, so common this side of the Bay, makes one wonder why the best, smartest, sharpest and cleverest ezine still can't make a buck. How did things go so horribly wrong? Where did the company stray off course?
The sad truth is, Salon never went off course, but stayed pointed straight at the ground for years. All told, Salon has lost about $60 million on revenues of $19 million over the last three years. The company has never been profitable; barring yet another financial miracle, it never will be. For most of its history Salon hasn't even been profitable on a gross margin basis. For those reading this who did well in English but dosed through Economics (yes, I mean dosed), this is like someone buying an apple for $2 and selling it for $1. Forget the cost of having a store, for every apple they sell they're losing money. With Salon's production costs often exceeding their revenues, they've been doing much the same thing for years. As of late management has heroically cut costs and grown revenue to a little over a million, up from just $567 thousand for the same quarter last year. Still, producing a $1.00 worth of web content still costs about $1.20.
With that in mind, the Salon's 50% drop in revenue over recent years could actually be a good thing. While cost cutting has been rampant, firing large numbers of employees can only go on so long. A workforce of 99 when the company went public grew to 148 employees in 2000, only to be amputated to a battle-hardened 58 today. Most of the top management is still there, having voluntarily instituted a series of drastic pay cuts to themselves and the entire workforce.
This all means that a eccentric billionaire could pick up the whole thing for probably a little more than two million dollars, working in the fact that you have to offer a premium to the board to get their interest. Bill Gates could do it easy. Of course, it would probably cost him $3 or 4 million a year to keep it going, judging by the latest results, though he could probably cut those losses by $800 k by firing all of management and running the whole thing with sophisticated algorithms a la Google News.
Admittedly, I'm no analyst. But with $266 thousand in cash on hand, and about a million in losses per quarter, Salon will be lucky to last out the year, or even the month. Of course, I could have made a similar observation about a year ago, and I would have been wrong. Salon has recently shown a remarkable ability to raise money, first $700 k from the founder of Adobe, one of their original investors (back to the teat, as it were), and most recently some $200 k from one of their own directors.
What will Salon's demise mean for the world in general? Probably not much. As the wild assemblage of raw talent dissipates to other publications, the Chronicle and Examiner may get a much needed readability boost. The forces of good and/or progressivism will lose another resounding voice. And another nail with be set in the pre-ordered coffin of our own ezine. Sure, our quixotic quest is probably doomed from the start. But if Salon can't do it, with a butt load of talent and a thick wad of Benjamins, what chance do we have with a couple of brain cells, a few bucks and a non-sequitur URL?
Posted by John on October 9, 2002
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