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TheStreet Open House

One Factor Driving Down United Online (UNTD) Today

NEW YORK (TheStreet) -- United Online (UNTD) was dropping 11.24% to $10.75 on Monday afternoon after the online retailer announced it would discontinue cash dividend payments.

The company made the announcement on Friday after the market had closed. United Online discontinued the payments "in order to provide financial flexibility to support anticipated long-term growth initiatives."

"Since I joined United Online nearly three months ago, the company has started to lay the foundation for a new, growth-oriented strategic direction," said President and CEO Francis Lobo in the company's statement.

"We are undertaking several key initiatives, which include optimizing our current product offerings to enhance our consumer value proposition; expanding new product development efforts to drive new revenue growth; and pursuing new strategic partnerships and other opportunities to expand our scope and reach. In order to ensure maximum financial flexibility as these initiatives unfold, the company's Board of Directors has determined to discontinue quarterly cash dividend payments.

"United Online has a strong balance sheet and will use its existing cash and free cash flow to support these and other initiatives that are designed to create long-term stockholder value," Lobo added. "Also, the company maintains a stock repurchase plan and would consider using it as an additional means of creating value for our stockholders."

United Online, which formed in 2001 by the merger of NetZero and Juno Online Services, plans to release its fourth-quarter and full-year fiscal results for 2013 on Feb. 19. The company plans to report approximately $68 million in cash and cash equivalents as at Dec. 31.

The company paid a quarterly cash dividend of 15 cents a share, which returned approximately $2.2 million to shareholders, on Nov. 30.

TheStreet Ratings team rates UNITED ONLINE INC as a "sell" with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate UNITED ONLINE INC (UNTD) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • UNITED ONLINE INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, UNITED ONLINE INC reported lower earnings of $0.91 versus $3.92 in the prior year. For the next year, the market is expecting a contraction of 211.0% in earnings (-$1.01 versus $0.91).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 967.1% when compared to the same quarter one year ago, falling from $5.45 million to -$47.23 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, UNITED ONLINE INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 73.07%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 950.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The gross profit margin for UNITED ONLINE INC is rather high; currently it is at 52.02%. Regardless of UNTD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, UNTD's net profit margin of -27.03% significantly underperformed when compared to the industry average.
  • You can view the full analysis from the report here: UNTD Ratings Report

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