Accounting worries have caused WorldCom’s share price to halve over the last month. Although the Q4 results show there is no cause for alarm in the short term, the slow growth rate in the US Internet and long-distance telecoms market (not to mention the questions raised by loans to the CEO) cast a shadow over the company’s future prospects.
US telecoms group WorldCom has released its Q4 results.
WorldCom’s Q4 results have rebutted many of the accusations and rumors surrounding its financial position. While concerns about its balance sheet, debt position, accounting and liquidity had wiped 50% off the share price last week, the results should reassure worried investors that the company does not face any immediate financial problems.
Bernie Ebbers, CEO of WorldCom, also announced he is to sell personal assets, not company shares, to repay his debts to WorldCom. This will be a relief to investors, who feared a further decline in the share price. Mr Ebbers currently owes the company $340-$400 million. However, there are worries over whether he will be able to do this.
WorldCom was once one of the fastest growing companies in the US communications industry. Now, it faces a much more severe downturn that was predicted. Sales growth has declined from 20% at the start of 2000 to 7% in the last quarter. The company is not expecting any improvement soon: it has cut its sales growth forecast for 2002 to 5%.
The Q4 results show that revenues grew by 7.1% to $5.3 billion, compared with 12% in Q3. With the lower growth rate, the company expects earnings per share to be around 75-80 cents this year. Again, this is below earlier expectations.
WorldCom is yet another victim of the sharp downturn in the tech and telecoms sector. Its emerging businesses in data, Internet and international services have been hard hit. At the same time, the US long distance business is stagnant at best. The company is also now facing severe competition from the Baby Bells, who are starting to make headway selling local data services.
The company has no bank debt, and does have a $10 billion bank line, adequate interest cover and no surprises on its off-balance sheet. It’s not in danger of bankruptcy anytime soon. However, the declining growth rate is worrying for the Worldocm – especially since there is little the company can do to reverse it.