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Stock Analyst Update

Marchfirst Still Struggling

Despite layoffs, it's still burning cash and on shaky ground.

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What Happened?
Embattled technology consultant Marchfirst (MRCH) posted fourth-quarter results Monday that were significantly worse than Wall Street expectations, which were already drastically reduced. Marchfirst's revenue of $214 million was 10%-15% below the company's earlier lowered guidance, and its loss of $0.40 per share--excluding various noncash charges--was well below First Call estimates of a $0.30 loss. Including those noncash charges, Marchfirst's net loss for the quarter was a staggering $37.15 per share, with most of that coming from a $6.5 billion write-off of goodwill from the acquisition of USWeb/CKS in 1999. The company said it expects first-quarter revenue to be slightly down from the fourth quarter, with losses narrowing to between $0.22 and $0.31 per share.

What It Means for Investors
We think investors should avoid this stock like the plague. Although it has made some improvements, Marchfirst is still on very shaky financial ground. Liquidity continues to be a significant problem, despite layoffs that have slashed the workforce by 20% in recent months. Indeed, while the company had $199 million in cash on December 31, it ran through nearly $60 million during January 2001 alone, and the company expects to burn through another $40-$60 million in the first quarter. Although Marchfirst is slashing costs and says it's close to arranging a credit facility to ensure that it won't run out of cash, we think it's still got a long way to go. Management said Monday that the company should stop burning through cash by the third quarter of this year, but given how badly it has missed expectations two quarters in a row, we're not optimistic that it will meet that target. 

While the $6.5 billion goodwill write-off doesn't affect Marchfirst's cash flow, it's symbolic of the failure of the Whitman-Hart and USWeb/CKS merger that created Marchfirst. Essentially, this charge says that $6.5 billion of investors' money has evaporated over the past year, given that the merger was consummated at the peak of the Internet bubble last March and the combined company's performance over the past six months has been nothing short of disastrous. It's possible that Marchfirst will climb out of its current hole and become strong again, but we aren't optimistic about its chances. Even in a best-case scenario, this company faces a long and difficult road.

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David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.