For the first quarter ending March 31, revenue fell from $35.8 million a year ago to $22.7 million. Operating income fell from $13.9 million to $7.2 million.
After tremendous growth from 2003 to 2004 and 2004 to 2005, the pace dropped off sharply last year. Revenue for the four quarters of 2005 in sequence was $35.8 million, $39.4 million, $38.4 million and $46.2 million, respectively. However, the cost of revenue was up in Q4 05, so operating income dropped slightly from Q3 05 to $21.3 million.
So, the erosion of Cogent's business from Q4 05 to Q1 06 was about 50%. Operating income dropped by two-thirds between the two periods.
According to the Cogent 10-Q, three customers accounted for 54% of revenue in Q1. Obviously, it does not take much of a drop in one large customer to hurt the top line. Of the drop in revenue from last year in Q1, $13.1 million came from one customer called CNE. For those looking for solace in the 10-Q, there was none to find.
The stock has reacted appropriately. It has fallen from a 52-week high of $33.10 to $15.99, near the year's low of $15.04. With a market capitalization of $1.48 billion, the stock trades at almost ten times revenues, according to Yahoo!Finance. And, given the recent results, that is still too expensive.
COGT 1-yr chart:
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at firstname.lastname@example.org.