Nope, there aren't any accounting irregularities pounding
stock Monday. Apparently, the irregularities are biological.
In one of those Wall Street freak occurrences -- one in which an executive's departure based on "personal reasons" really is for personal reasons -- EarthLink President and Chief Operating Officer Mike McQuary is stepping down from his post. While McQuary didn't recite the usual line about how he wants to spend more time with his family, he certainly does have a lot more family to spend time with: His wife gave birth to triplets late last year, bringing the total number of kids in the household to five, according to an EarthLink spokesman.
Unfortunately, Wall Street, worried about how management will extricate the Internet service provider from various challenges, didn't treat the COO's departure as a blessed event. Shares in EarthLink, down from a 52-week high of $18.92, fell 72 cents, or 9%, to trade at $7.15 Monday.
EarthLink, the nation's third-largest ISP, said McQuary wasn't available for comment. But Youssef Squali, media communications analyst at First Albany, says the "personal reasons" reason is plausible. He notes that McQuary was absent from a recent investor road show, and he says he takes at face value other executives' explanation that McQuary was occupied with family matters.
That being said, Squali says he has no doubt that the stock's slide Monday was attributable to the departure of McQuary, who says he is resigning as a board member, too, but will work on special projects for CEO Garry Betty.
One of the biggest challenges facing EarthLink, says Squali, is holding on to the 4.2 million customers who use the company for telephone access to the Internet, and who accounted for 79% of the company's revenue in the first quarter. "They need to stop hemorrhaging dial-up subscribers," says Squali. "That's their bread and butter."
In addition, EarthLink has to find a way, says Squali, to recruit more subscribers for its broadband Internet connection service, which the company and Wall Street believe will be the source of future profits at EarthLink.
Chief Financial Officer Lee Adrean, who Squali says will take over responsibility for McQuary's merger and acquisition activities, is "very, very good," says Squali. "He's very conservative, which is exactly what you need in this situation."
Squali, whose firm hasn't done underwriting for EarthLink, has a buy rating on the stock, First Albany's second-highest rating. His 12-month price target for EarthLink is $13.
Betty, who will take over McQuary's day-to-day operational responsibilities, did a good job running EarthLink before its merger with the rival ISP MindSpring in early 2000, says Squali. McQuary had been COO of MindSpring before the merger. "Clearly, the market is more challenging than it was when
Betty was running only EarthLink," says Squali.