Internet Hype Gives New Life to Quarterdeck Stock

What’s the hottest Internet-related stock of 1995? Many investors would probably guess Netscape Communications, whose initial public stock offering soared 167% on its first day of trading in August.

But that’s a piker performance compared to the meteoric rise of Santa Monica-based software firm Quarterdeck Corp. Its shares, $3.13 in January, recently hit $22.125 on Nasdaq, and at Thursday’s close of $19.19 are up 513% year-to-date.

Quarterdeck, a 13-year-old company with a rocky history, is staking its future in part on software that lets individuals and business users navigate and exploit the Internet, the global computer-based information network that is expanding exponentially.

Although Netscape has gotten more publicity recently, Quarterdeck’s fans say its product line is broader and that its Internet-access software, in particular, is better. Walter S. Mossberg, the Wall Street Journal’s personal-technology columnist, in July voted Quarterdeck’s Mosaic software “the best overall package” for Internet access.

But most of Quarterdeck’s products are as new as the cyberspace explosion, and in the intensely competitive software arena--dominated by Microsoft Corp.--Quarterdeck’s long-term success is far from assured.

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Only a year ago Quarterdeck was nearly in ruins. Under founder Therese Myers the firm was essentially a one-product company, focused on software that allows personal computer users to more easily manage memory functions and perform multiple tasks simultaneously.

Increasingly squeezed by new Microsoft products, however, Quarterdeck saw sales plummet to $27 million in the year ended last Sept. 30 from a peak of $55 million in 1992. Its stock, which traded as high as $26.63 in the early ‘90s, fell as low as $1.88 in 1994. With its bottom line deep in the red, the firm slashed its work force from 300 to 200 last year. Myers resigned and Quarterdeck’s board named King R. Lee, a management consultant, as interim chief executive.

Lee quickly redirected the company, picking three areas of focus for new software products: the emerging Internet market, remote computing (computer-to-computer networking) and the company’s base memory-management business.

Although Quarterdeck’s stock was left for dead last year, Lee had one big advantage in reviving the firm: $25 million in cash and short-term securities on the balance sheet.

Some of that capital helped pay for Quarterdeck’s Internet product launch, which began in March. In the meantime, King brought in Gaston Bastiaens as the company’s new CEO in January. Bastiaens, a technology veteran who held senior posts with Philips Electronics and Apple Computer, set to work restoring Quarterdeck’s credibility on Wall Street and with customers.

Helped by revived demand for its memory-management software and initial sales of Internet software, Quarterdeck recorded revenue of $47.8 million in the nine months ended June 30, up from $29.9 million a year earlier. Net income was $4.6 million, compared to a loss of $3.6 million.

Yet much of the current hype surrounding Quarterdeck is over “vapor ware”--software announced but not yet released. The company has a heavy calendar of product rollouts this fall, including software that promises easy two-way voice communication between Internet users.

Skeptical “short sellers,” traders who look for stocks that may be overpriced and primed to fall, have been circling Quarterdeck.

But the company’s fans insist that Quarterdeck’s turnaround is real and its new-product strategy well planned. Bastiaens also has been actively acquiring smaller software firms and joint-venturing products with other firms.

“This isn’t just a company with losses sending out press releases to get the stock up,” says Christopher Galvin, analyst at Hambrecht & Quist. He expects Quarterdeck to earn 65 cents a share in calendar 1996, up 35% from this year’s estimate.

Orin Hirschman, whose investment firm Adam Smith & Co. has been recommending the stock all year, says Quarterdeck’s new product line is exceptionally broad, and claims that software distributors worldwide “love the company.” More important, he describes the new management team as firmly committed to shareholders’ interests.

Even so, the current quarter isn’t likely to be an earnings blockbuster, the company admits. With the release of Microsoft’s Windows 95 operating program, purchases of other software programs industrywide may have been delayed. Quarterdeck is calling this a “transition” quarter for sales.

Thus, whether the stock can sustain its gains will depend largely on fourth-quarter software sales, including the new Internet programs that Quarterdeck hopes will sell briskly for Christmas.

In that sense, Quarterdeck’s success still is virtual, the stock’s resurrection notwithstanding.

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Virtual Rocket

Shares of software firm Quarterdeck Corp. have soared this year as new management has returned the company to profitability. Weekly closes and latest, on Nasdaq:

Thursday: $19.19

Source: Los Angeles Times