The Perils of Being Public

By Mckinney, Jeffrey | Black Enterprise, April 2001 | Go to article overview

The Perils of Being Public


Mckinney, Jeffrey, Black Enterprise


Black public traded companies have been shaken up in a volatile market

AMONG THE MOST VISIBLE COMPANIES TO JOIN THE FRATERNITY of publicly traded corporations in recent years is Radio One Inc. The $93.3 million media conglomerate had all the requirements for success when it sold stock to shareholders in mid-1999: a strong balance sheet, a rock-solid business model, and top-notch management.

Over the course of a year, Wall Street had a love affair with the stock. It was one of the most successful offerings not only for a black-owned company but also for any entity of its size and scope. The market value of Radio One (Nasdaq: ROIA) hit about $1.8 billion when its stock skyrocketed from its offering price of $24 a share to $96.50 within seven months, an increase of more than 400%. (On June 7, the company's stock split 3-for-1, and the share price was adjusted to $32.17.)

When the company was named the BLACK ENTERPRISE Company of the Year in 2000 (see "High-Frequency Profits," June 2000), its 35-year-old CEO, Alfred C. Liggins, made a prescient comment: "Just because your business grows at an exceptional rate doesn't mean that investors or the market will believe it. You also have to make sure that [growth] gets translated into value on your stock price."

So, when Liggins and his right-hand man, CFO Scott Royster, warned Wall Street in September that the industry's growth rate was slowing, and suggested that Radio One's revenues and profits for 2000 would not match the robust growth pattern of the previous two years, the romance was over. Bearish activity on the Nasdaq sliced and diced the company, along with other concerns on the exchange, in the fall of 2000. By December 1, the stock had plunged to $11.81, a 63.28% drop since the June stock split. (By January 31, the share price had recovered somewhat, rising to $16.)

Welcome to Wall Street.

Radio One and other African American companies have discovered that being public can be an extreme form of adventure capitalism--especially in today's volatile environment. Liken the process to bungee jumping, where the sheer force of the market can violently jerk the stock price of a given company up and down. What matters most to the CEO is that he or she not take the plunge with a frayed rope.

Over the past 18 months, these companies discovered that the market giveth and taketh away. For example, black Nasdaq firms saw huge gains in 1999 and 2000. In the period from mid-August 1999 to mid-February 2000, high-tech highfliers like Ault Inc. (Nasdaq: AULT), a broadband modem and computer peripherals manufacturer, and OAO Technology Solutions (Nasdaq: OAO), a Greenbelt, Maryland-based information services firm, produced stratospheric percentage gains. Ault posted an impressive 126% return, rocketing from $5.06 a share to $11.44 a share, while OAO vaulted a phenomenal 221.35%, from $2.81 a share to $9.03 a share. By December, Ault had slid 41% to $6.75 a share, and OAO had dropped a heart-stopping 80.3% to $1.78. In the wildly volatile tech market, these firms had the same hair-raising experiences as their white counterparts.

The volatile stock market has forced black public companies to change how they operate and court potential investors. For one, they must meet their quarterly earnings estimates, the indicator investors and analysts rely on when deciding whether to stick with or flee a company these days. Moreover, CEOs must adroitly and clearly communicate what those numbers mean in the context of the company's overall business strategy. And they must do so without breaking a sweat. The process has become even more challenging thanks to a slowing economy and antsy investors, like you, who are hungry for higher returns and concerned about the "R" word--recession.

Over the past few months, BE has reviewed the state of several high-profile companies on our black stock index and how they have fared in this "take-no-prisoners" market. …

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