Traffic.com Inc. (TRFC) had its IPO in January and hit $13.30. The company raised almost $75 million. The stock recently dropped below $9 and now trades around $9.50. That's a pretty big drop in a short time.
The company describes its business as syndicating real-time traffic data from the largest cities in the U.S. so that it can be run by local TV and radio stations. Traffic.com keeps part of the advertising time and sells it, making money from the proceeds. The company currently focuses on 35 large metropolitan areas.
In mid-July 2005, the company began to sell advertising at its website and distribute its data to wireless devices. These applications certainly seem more sexy than the radio syndication business.
The company is something of a technology marvel. It collects over 25 million traffic flow records a day. This data is converted into digital format for distribution to the company's customers.
It is difficult to fault the company's distribution network. Traffic.com has 48 TV stations as customers. The company website had over 900,000 unique visitors in February 2006 which was a 67% increase over the same figure for September 2005.
The company seems to have a simple problem. It can't seem to make money. Revenue for 2005 was $43.3 million. The number was barely up from $42.4 million in 2004. Gross margin actually dropped. The company had a 2005 loss from operations of $37.5 million. This included $18.5 million for legal settlements, but even backing that out, the bottom line was worse than in 2004.
Looking at Q4 2005 numbers, Traffic.com had revenue of $11.2 million, down from $11.4 million in Q4 2004. Gross margin fell apart, dropping from $3.5 million in Q4 04 to $2.2 million in Q4 05. The loss from operations also got much worse.
With a market capitalization of $184 million, I would not want to have to be the one making the case for buying this stock, even while it is near its lows. It has a lot of distribution, but would need to have a huge run-up in revenue to make a dime.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com, the 10th most visited website on the internet according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and in the past has been on the boards of TheStreet.com and Edgar Online.