Thursday, September 25, 2008

So, what's gonna happen to Wireless Ronin (RNIN)?

Yikes, it has been a bad week for one of the few publicly-traded digital signage companies in the US market.  Granted, it's been a bad week for most publicly-traded markets, but RNIN is facing some exceptional challenges right now.  As we noted a few months ago, the company had to write off a huge portion of its 2006 and 2007 income as a bad debt, and unless their estimates for next quarter are extraordinary, 2008 doesn't look to be doing them any favors in the revenue department either.

This week, in a triple-whammy, the firm's stock got downgraded, longtime CEO Jeff Mack announced he was leaving, and consequently, the stock saw about a quarter of its value evaporate. While an interim CEO has been appointed whose sole job is to find the next leader of the firm, clearly investors must be wondering what the company has going in its favor these days.  With the credit market so tight right now, it's hard to fund new projects, and RNIN's cost infrastructure is far too high for their own good.  As one commenter on Yahoo! Finance put it:
The current consensus is for a loss $1.15 per share for 2008, that is up from an estimated loss of $.94 just 90 days ago...They have been low side for the past 4 straight quarters, meaning the company lost more than expected. As they look to 2009, the estimated loss per share is at $.83 versus a loss per share of $.58 cents. That translates into RNIN burning through $17.25 million this year, and $12.45 million next year. Add those two number up, and you burn through more cash than RNIN has. Do you think they can do a secondary offering to raise more cash with a 2 or 3 dollar share price? I think not...
That's a hugely important point in this crazy market right now. RNIN has relied on the cash raised from two successful public offerings to keep them going while trying to ramp sales.  Unless there's a major turnaround in the market soon, they'll have a very hard time selling more shares to raise a significant amount of money.  And offering debt is totally out of the question given their performance.

And before you go bashing me for being a RNIN-hater, the fact is that I'd like to see these guys be successful.  We gain basically nothing for having them fail, and in fact it might hamper our own ability to raise money in the future.  What confounds me to no end, though, is how these guys managed to get such a high valuation and extract such a large amount of money from the public not once, but twice.  On the private markets they'd never be able to secure a $50M+ valuation with such tiny sales and such large expenses.  It's like they've exploited some bizarre reverse wisdom-of-crowds effect.

We'll continue to track this company to see if they can pull it out (or at least appoint a CEO that can stabilize them).  But as of right now, I would not be bullish on them at all.

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