SAN FRANCISCO (06/08/2000) - Online magazine Salon.com fired 13 workers and shut its Seattle office yesterday in a move aimed at cutting its operating expenses by 20 percent. Salon CEO Michael O'Donnell told The Standard that the company also will trim its marketing budget and discontinue some columns, though he wouldn't say which ones.
"We still believe [online content] will be a big industry," O'Donnell says.
"But things are taking longer to develop than we thought." The cuts come amid much hand-wringing over the viability of online-content companies in what has become a bear market. Also this week, crime news site APBnews.com fired its 140-person staff after failing to secure funding. And in May, the high-profile Digital Entertainment Network shut its doors after running out of cash.
Those companies didn't have the good fortune of being public before the stock-market correction in April. Since the downturn, many Web companies have had trouble raising enough cash to stay afloat as they await the reopening of the IPO window. Many scoffed last June when Salon closed its first day of trading at only $10 - during the peak of soaring dot-com valuations - but the IPO is what's keeping the company alive. But just barely. Online investment bank W.R. Hambrecht, which underwrote Salon's IPO, estimates that the company will take in $14 million in revenues for its current fiscal year. The company also has about $18 million in cash left over from the June 1999 public offering, but Salon's expenses are expected to run to about $28 million this year, according to O'Donnell, which leaves the company in a tight squeeze.
However, O'Donnell said that Salon has "several term sheets" from potential investors. Does this mean the company is considering a merger? "Everyone is talking to everyone," O'Donnell says. "But we're not interested in selling the company. We're building the brand." Salon reported fourth-quarter revenues of $2.6 million and a net loss of $5.2 million, or 41 cents per share, not including noncash charges.
Salon's stock, while never particularly strong, has taken a beating since the April correction, closing on Monday at $2.03 a share, to give the company a market capitalization of about $25 million. "We thought we were undervalued at $10 a share," O'Donnell says. "We especially think we're undervalued at $2 a share." But many believe that the magazine is still struggling to find its way. Recently, Salon readers almost universally panned a massive redesign of the site. After being flooded with complaints, the company promptly switched back to a format more like its original design.