Sprint Calling PurchasePro
will announce a marketing alliance with
as early as today, sources at PurchasePro say.
"Upon completion of final details, this deal is going to happen," Charles Johnson Jr., chairman and CEO of PurchasePro.com, said late Thursday.
The deal could bring as much as $40 million in annual revenue to PurchasePro, which reported revenue of $1.7 million in the third quarter.
Sprint's offices were closed Thursday evening.
In exchange, Sprint will be issued warrants enabling it to buy up to 900,000 shares in the business-to-business e-commerce provider, with the opportunity to garner another 900,000 if certain transaction incentives are met. PurchasePro has employed similar agreements in previous deals, using its stock as currency to entice "traditional" companies into partnerships rather than for acquisitions of competitors, as many other Internet companies do.
On Wednesday, for example, PurchasePro rose 6.6% to an all-time high of 155 on news of a deal with
, which will pay $5 million and annual fees of $1.6 million for PurchasePro to create 20 sites to serve the tradeshow organizer's customers. In exchange, Advanstar received warrants for 350,000 shares.
Since coming public Sept. 14, PurchasePro's shares have risen over 485% (they dipped 2.7% Thursday). Heck, they're up 130.5% since I first wrote about the company on
Nov. 3. I'm not trying to take credit -- I'm just trying to point out (again) the incredible faith investors are showing in this story.
And now even more investors are going to get a chance to show their devotion. On Nov. 18, the company announced a 3-for-2 stock split, which took effect yesterday, and increased the number of shares outstanding to approximately 28 million shares from 18.7 million previously.
Addtionally, PurchasePro.com is planning to file a secondary offering in the coming days of as many as 3 million shares, Johnson said, meaning there will be even more shares around.
The secondary will "empower the company and make sure we have enough capital to facilitate growth of our infrastructure," he said, noting competitors
raised "a considerable amount" more at their respective IPOs than did PurchasePro.
Asked about the potential dilutive effects of the secondary, Johnson noted he holds a 26% stake in the company; thus the offering is "obviously not in my best interest," but it's the "responsible thing to do" for the company, he said. Moreover, he does not expect any directors or officers to sell on the deal.
Lonely Are the Brave
Right now, most investors don't seem worried about such quaint notions as "dilution" or "earnings" when it comes to highflying stocks like PurchasePro. But at least one market player is critical of the PurchasePro.com story and short the stock.
The source, who requested anonymity, noted transaction fees in the company's hospitality business -- generally 1% of deals completed via PurchasePro's "e-marketplaces" -- totaled $79,403 for the three months ended March 31, then rose to $102,243 in the second quarter, but dipped to $93,000 for the third, citing various company filings with the
Securities and Exchange Commission
"If they cannot significantly grow transaction fees in their primary vertical, hospitality services, then it will be a stretch to estimate that they will grow in other verticals," the short-seller said via email.
But "hospitality isn't our core business," Johnson retorted. "That's where we started. We didn't start collecting open-market transaction fees until the beginning of the third quarter."
The CEO expects a "significant leap" in those nonhospitality fees in the fourth quarter, noting the real-time "launch" of its alliance with
is expected on Dec. 15.
Johnson denied another charge from the short-seller: that the company has been booking revenue from deals with companies such as Office Depot instead of deferring and amortizing them monthly over the life of the contracts.
Despite a series of deals (many of which juiced the stock), the company's deferred revenue increased "only" to $281,418 for the September quarter from $177,670 in the June period, the source said. At the same time, so-called other revenue "ballooned" to $888,439 in the third quarter from $323,960 in the second, he said, combining transaction fees and other revenue from the second quarter to make an apples-to-apples comparison to the third-quarter number.
"We are booking it as we collect it," Johnson said. "We've not collected the first dime" from the Office Depot deal -- aside from some upfront costs -- and won't until the day the catalog hits on Dec. 15.
Additionally, he notes "other revenue" includes fees for licenses, Web site development and hosting, catalog, advertising and other services, which were combined into one line item because "there were too many metrics."
Nevertheless, "I believe that within six months you will be emailing me requesting information about how this company is deteriorating," the short-seller declared.
Maybe so. I just wonder if he'll still be around to answer.
Aaron L. Task writes Monday through Thursday for TheStreet.com. 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. He welcomes your feedback at