Malcolm Berko: Without earnings, uber-apps firm lost in cloud
March 12, 2013 5:58PM
Updated: April 14, 2013 6:14AM
Dear Mr. Berko: Last July, my broker had me buy 700 shares of Dendreon at $7. It has done nothing. Should I sell it?
Now he wants me to buy 100 shares of ServiceNow, which he says is an excellent long-term investment. Could I also have your opinion on this one?
— T.P., Wilmington, N.C.
Dear TP: ServiceNow (NOW-$29) is an IT management firm with less than $240 million in revenues deriving from a proprietary platform that automates work flow and integrates related business processes.
NOW’s proprietary platform is an enormous library of cloud apps, providing a process on nearly everything. This specious company employs 998 people, has a market capitalization of $3.7 billion, hasn’t made a profit since the Great Flood. NOW is nothing to write home about.
NOW’s management, like the management teams of its zillion brethren, believes that its platforms of super-apps are unrivaled, nonpareil and absolute. Without the ability to produce earnings, their companies are just two pieces of white bread with a slice of baloney in between.
A company without earnings is like a Mack truck without tires; it ain’t going nowhere unless someone, with a great deal of effort, pushes it. Calling NOW an “excellent long-term investment” is dishonest, but that’s how Wall Street generates revenues.
Dendreon Corp. (DNDN-$5.26) is one of the many stocks I kind of watch from the far distance. Every once in a while, a flare will flicker a little brighter on the horizon, and sometimes, when I look closely, it’s Dendreon. But a little less than every once in a while, DNDN makes the medical news with a carcinoembryonic antigen, a carbonic anhydrase or a new small molecule, and its stock price will spike.
A promising cancer drug that got Food and Drug Administration approval in April 2009 caused one of those spikes; it pushed DNDN to $56 a share. And smaller spikes in the past have made this stock an interesting speculation.
DNDN licenses its novel therapeutics, which last year took in $325 million, but its profit potential is always scuppered by huge research and development expenses, plus selling and administration costs. DNDN has a 1,500-person payroll, has been a public company for a dozen years, burns cash like trash, hasn’t made a dime since before the turn of the century and has accumulated more than $1.6 billion of losses.
An occasional rumor of a new drug discovery, a merger with another biotech or even its acquisition by a major or semi-major pharmaceutical company keeps DNDN interesting. If you sell your 700 shares, I can almost guarantee that within a month, it will trade 10 points higher. Keep them.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or e-mail him at firstname.lastname@example.org