Shares of RCN Corp., the Princeton, N.J.-based cable
overbuilder and telecommunications-service provider, plummeted last week after the company
released a disappointing earnings report.
Shares of RCN, which are traded on the National Association
of Securities Dealers Automated Quotation system, dropped $3 each to $42 Aug. 2 -- the day
after the company announced that its second-quarter loss would be 15 percent higher than
The slide continued in subsequent days, with RCN stock
closing at $34.19 per share last Wednesday, down more than 15 percent.
However, the stock began to rebound the next day, up by
about $1.50 per share in early Thursday-morning trading.
Net losses were $67.9 million in the second quarter and
$135.6 million in the first half, compared with deficits of $67.8 million and $85.6
million, respectively, in the comparable periods last year. Pro forma revenue for the
quarter was $81.3 million, up 2 percent. For the first half, revenue was up 57 percent to
RCN attributed the increased losses to additional
expenditures to build out its networks.
Despite the downturn in the company's stock, at least
two brokerage houses reiterated their previous ratings on RCN. Merrill Lynch & Co.
analysts Dan Reingold and Mark Kastan both reiterated their near-term
"accumulate" and long-term "buy" ratings on the stock Aug. 2.
Kastan said the price drop was due more to investor
confusion regarding a recent proposal by six long-distance telephone companies --
including AT&T Corp. -- to trim the local access fees they pay local telcos for access
to customers. RCN provides local and long-distance telephony, as well as cable television
and high-speed Internet, in its markets.
"RCN, given its exposure to the residential market,
would benefit from a restructuring of the access charges," Kastan said. "We
continue to be bullish on the stock." He added that RCN's losses for the quarter
were in line with his expectations.
RCN did have some good news in its report: The company is
moving full-speed ahead with deployment of its fiber optic network in California, and it
is currently building its network in that state. In addition, it plans to launch in the
The video segment saw significant gains in revenue during
the six-month period -- 13 percent, from $54.6 million to $61.8 million -- and sales in
the data segment more than doubled from $24.3 million to $55.3 million in the six-month
For the quarter, video revenue was up 2 percent to $31.3
million compared with $30.5 million in the first quarter. Data revenue was up 4 percent to
$28.3 million versus $27.1 million in the previous quarter.
Total service connections increased to 902,560 in the
second quarter from 885,742 in the first quarter. The number of homes passed by RCN's
advanced fiber network increased 22 percent in the quarter to 427,843. RCN also increased
its marketable homes by 20 percent in the quarter to 361,015.