Palm on the Brink: Market Cap Drops 30 Percent
Palm's (PALM) death spiral is a long-running affair. But the last week sharpened just how precarious its position is. Palm is the house that teetered at the edge of a cliff as Charlie Chaplin tried to maintain his balance and safety in The Gold Rush. In this case, on the other edge of the cliff is financial ruin for its stock, as Palm's share price gets closer and closer to the point of no return.
Analyst Peter Misek of Canaccord Adams thinks that the stock is worth zero. As in nothing. As in devoid of any value:
"Palm's troubles will only accelerate as carriers and suppliers increasingly question the company's solvency and withdraw their support," Peter Misek, a Canaccord Adams analyst in Toronto, said today in a note in which he cut Palm's price forecast to $0. "With what appears to be roughly 12 months of cash on hand, an accelerating burn rate, a complete lack of earnings visibility, and substantial debt and preferred equity, we no longer see any value in the company's common equity."The market has confirmed that sentiment. Less than a week ago, I said that Google (GOOG) or Microsoft (MSFT), or even Apple (AAPL), could buy Palm for nothing other than the value of its patents in the legal battles brewing in the wireless industry. At the time the market cap was about $937 million. Out of curiosity, I took another look at company's numbers this morning on Google Finance. The market cap is now at $660 million. That's a 30 percent drop in under a week, with the stock quickly closing on a 52 week low.
Many companies are more than the vagaries of their stock prices, but Palm is plunging into dangerous and deep water. At what point does the market cap drop so low as to trigger clauses in loans, insurance, and other financial arrangements that will allow others to call in debt or cancel existing arrangements? Under what conditions did Palm issue its convertible preferred stock? Could those shareholders drain out cash in what Misek said seemed to be about a year's worth funding, with an accelerating cash burn rate?
At this point, even even firing CEO Jon Rubinstein would do nothing. Even an announcement that the Pre Plus and Pixi Plus handsets would be available from AT&T (T) is unlikely to provide much buoyancy, as the carrier has already said that it's delaying the introduction. The time is long past when a new face could rescue the company. At the rate the company's market cap and cash are evaporating, it would be optimistic to assume that Palm could exist through this summer -- let alone into next year. Actually, at the rate the market cap is disappearing, the company could literally have only a few more weeks of existence. The question now is whether people will successfully jump out of the house before it goes sailing into oblivion -- and there's no app to tell you that.