Analysts and investors drop Palm like a hot rock; stock ends day down 29% | webOS Nation

Analysts and investors drop Palm like a hot rock; stock ends day down 29%

by Derek Kessler Fri, 19 Mar 2010 4:09 pm EDT

  Palm HQ

“Palm is essentially an accelerating death spiral.”

That’s not a good thing to hear, and given yesterday’s bleak financial report, we can’t say we disagree (though we do maintain that it is possible to pull out of a death spiral). That little nugget comes from Ilya Grozovsky, analyst at Morgan Joseph & Co. As CNN Money noted, Grozovsky was one of two analysts to cut their price targets on Palm stock to a heart-stopping $0/share. By valuing the stock at zero, Grozovsky and Peter Misek of Canaccord Adams are declaring that Palm the company is worth nothing.

Those two doomsayers aren’t the only ones kicking Palm to the curb. At this point, not a single analyst will recommend buying Palm stock. Given Palm’s current cash burn rate, most estimate that Palm has only about twelve months to execute a turnaround or find a suitor with deep pockets.

Not all analysts think Palm is completely worthless, as Shaw Wu of Kaufman Bros. said, “While we believe Palm has some value with its webOS and tight integration of hardware and software, we are unsure of the company’s prospects as an ongoing concern.” Essentially, as All Things D pointed out, while webOS may still be a valuable property, it’ll do Palm no good to have it if they can’t get customers (or another company) to buy it.

And therein lies the problem: Palm can’t seem to properly demonstrate what it is that makes webOS unique. To market it effectively is going to take a considerable marketing investment, and that’s money that Palm doesn’t have. Well, they do have it, but at the rate they’re going to have to spend, they won’t for long. Said Charlie Wolf of Needham and Company: “[Palm] could invest even more in marketing the Pre and Pixi. But it’s unclear whether Palm could ever spend enough to reach a position where Pre and Pixi sales were sufficient to cover its marketing bill and return the company to profitability. In the mean time, time is running out.”

Just how badly does Palm need to invest in marketing? As Business Insider noted, Morgan Stanley analyst Ehud Geldblum estimates that Palm currently has 1.15 million devices on shelves and shipping to carriers. That’s an alarming amount of excess inventory for any company, but when that amounts to six months of sales for Palm, that’s a disastrous number. Even if Palm drastically cuts their shipments in the next quarter and manages to spur a significant bump in sales, they can still expect to have hundreds of thousands of devices still lodged in inventories around the world.

The bad news from yesterday’s conference call and the compounding bad reports from analysts has pummeled Palm’s stock like it’s never been pummeled before. Palm shares closed the day’s trading at $4.00, a drop of 29.16% from the previous day’s close, and the lowest the stock has been in nearly fifteen months. From the high of $18.09 at the beginning of October 2009, Palm’s value has declined a staggering $4.5 billion (outstanding shares plus Elevation Partners’ 1/3 stake). As of the close today, Palm’s value stood at a hair over $1 billion ($1.005 billion, to be precise).

The most frustrating part is that it’s still difficult to figure out exactly why the Pre, Pixi, and webOS haven’t caught on. Said John Gruber on his site Daring Fireball, “I don’t really understand why. Their webOS phones are, to my eyes, the best competitors to the iPhone. People who own them seem to like them. Their marketing hasn’t been great, but it’s been better than Android’s. But Android is taking off and webOS isn’t, and, trite though it sounds, Palm really has bet the company on webOS.”

What does Palm need to do to turn this around? We’re not entirely sure, but we do know that the next several months sure won’t be pretty.