A few words on FWIS:|
FirstWorld Communications (FWIS) 27 +2: Enron (ENE) is $129 mln richer as a result of its investment in FirstWorld Communications (FWIS), which went public yesterday. Contrary to reports accompanying the FWIS float, Enron is no longer a major stockholder in the business data services firm. Enron dumped its shares on Friday, selling the 45% stake for $129 mln in a private deal with Texas Pacific Grp. Enron had no choice but to remove itself from close association with FWIS, since the company now competes head-to-head with other large Enron clients. Enron invested early in FWIS when the company's plan was to enter the newly opened market for local phone service. Instead, FWIS will be investing over $125 million to become a player providing data services to mid-size companies.
The outlook for growth in business demand for everything from ISP to data centers is supposed to be very good, with predictions of 100% annual growth for the forseeable future. It's a good story, which is what FWIS needs since it doesn't have any earnings. None are predicted anytime soon, either. The focus down the road, therefore, is going to be on top line growth, which soared over 4000% to $54M last year.
Investors should be looking at FWIS top line performance in the context of overall growth in FWIS' markets. If FWIS revenue growth outstrips that of the overall market for business data services, then that means FWIS is building market share and is positioning itself as a market leader. With market leadership established, profits should follow.
So watch top line growth. One thing that is unattractive about the FWIS IPO is that the series B shares that were offered to investors have just 1 vote, while the series A shares carry 10 votes. Having seen firsthand how Canada's financial oligarchy has used mutiple voting classes to screw investors, we're wary of series B offerings. FWIS Chairman Donald Sturm, a major, major player in telecommunications for years, holds the controling block of series A, while the rest is now held by Texas Pacific Grp.
No doubt Sturm will provide effective leadership, but if things start to go wrong investors should remember that holders of the B shares are the weaklings in FWIS' corporate governance structure. FWIS floated at $17 and went out around $24, a modest aftermarket performance in today's IPO context. So the shares aren't wildly overvalued. Once again, that is in today's market context.
FWIS still has a market value of $1.4 bil. Remember the days when a company struggled for years to cross the $1 bln market cap threshhold?