Amid Pie-in-the-Sky Projections, Metricom Rides High - TheStreet

Amid Pie-in-the-Sky Projections, Metricom Rides High

Investments by Paul Allen and MCI WorldCom have boosted the stock. But investors would be wise to recall the fate of Iridium.
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Question: Other than the fact that its stock is up almost 40 since last year's American Electronics Association meeting on the strength of renewed interest from Paul Allen and new interest by MCI WorldCom (WCOM) , what's the difference between Metricom's (MCOM) situation then and now?

Answer: nothing.

A year ago, Metricom was bumbling along with its plan to build a national network providing wireless modem service for laptop-toting road warriors. Despite having gone public in 1992, the long-in-the-tooth Silicon Valley startup had established beachheads in just three metropolitan areas -- San Francisco, Seattle and Washington, D.C. -- and signed up only 30,000 subscribers.

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The company had high hopes of finding new financial backers so it could roll out speedier service across the land. It found them. Earlier in the year,

Microsoft

(MSFT) - Get Report

co-founder Allen and acquisitive long-distance carrier MCI WorldCom agreed to pump in $600 million (at about $10 a share). The phone company also promised to commit to purchasing $350 million worth of Ricochet service from Metricom once the smaller company sets up its 128 kilobit-per-second service, a much speedier offering than its current 28.8 kbps fare.

Metricom's stock shot up past 50, then retreated to the mid-30 range on the news, meaning that "investors" really haven't had the opportunity to make money on this stock. Together, Allen's

Vulcan Ventures

and MCI WorldCom will own equity and warrants to purchase up to 85% of the company once it completes its financing, which is expected before the end of the year.

That's the good news.

The bad news is that Metricom remains a very large, very expensive science project. Other than convincing Allen and MCI WorldCom to go along for the ride (Allen already was a significant shareholder), Metricom is as unproven as it was a year ago, when its future was considerably bleaker.

In fact, what with pie-in-the-sky projections of millions of subscribers sometime in the next century and the hundreds of millions of additional dollars that will be needed to build its system, Metricom has all the trappings of another infamous wireless boondoggle,

Iridium

(IRIQE)

. That worldwide venture, spearheaded by

Motorola

(MOT)

, predicated its existence on the notion that globetrotters would pay oodles for a brick-sized telephone they could use anywhere. The market's failure to materialize has sent Iridium scrambling to come to terms with its creditors.

Likewise, Metricom supposes that the Internet-crazed class will be so impatient to get connected that it will pay a couple hundred bucks for a wireless modem and then up to $100 a month for a service that will work only in major cities (12 by the end of 2000; 46 by the end of the following year).

Wall Street, typically enthusiastic at the beginning of such a process, already is licking its chops at the financing Metricom must complete to stay on track.

Lehman Brothers

analyst John Bensche, for one, calls Metricom an "undiscovered jewel," and has set a 12-month price target of 76. The stock, in a burst of exuberance during management's presentations at the AEA conference in San Diego last week, jumped up to 47 1/8.

But even Bensche, acknowledged by Metricom as the analyst who has spent the most time mulling its prospects, notes that the risks are huge. "Make no mistake, the plan that management has guided to is very aggressive," he wrote in a late October report to clients. "A huge amount of work needs to be done to hit

its timetables."

The size of the project is staggering. The $600 million in pledged capital essentially will cover only next year's 12-city construction. Bensche estimates that Metricom will spend a minimum of $943 million by the end of 2001. He guesses it will spend a total of $2 billion on capital expenditures by 2007, in which year he thinks it will earn $13.20 per share (or $1.1 billion) on revenue of $2.9 billion and 8.1 million subscriptions.

The projections are highly debatable -- and unknowable. Land-based Internet access gets better and better. And truly nifty services like Metricom's also will compete with hand-held wireless toys like Palm VIIs or juiced-up cellular telephones from the likes of

Nokia

(NOK) - Get Report

.

Metricom CEO Tim Dreisbach and Chief Financial Officer Jim Wall are touchy on the subject of projections, preferring instead to refer investors to the work of analysts like Bensche. No matter. Through Wall Street, the company has endorsed its aggressive targets, giving potential investors clear milestones it must hit to maintain its lofty valuation of nearly $1 billion.

Says Wall: "Our financials that are out there are reflective of where we are today, not where we're going."

As well, the company's stock price today is reflective of where investors think Allen and MCI WorldCom are taking Metricom. If Metricom doesn't get there -- on time and on budget -- look out below.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.

Edie Yates assisted with the reporting of this column.