Micro-Cap Corner

First Call/Thomson Financial Insiders' Chronicle, May 14, 2001

The cash burn rate of the dot.coms headlined last year's tech meltdown, and now, one year after the sparkle and fade, Net companies continue to fan the embers. With several companies getting down to their last dollars and the capital markets still tight with the purse strings, the only question that remains is who will survive.

Lending Tree, Inc. (NasdaqNM: TREE), an Internet-based loan marketplace for consumers and lenders, has been targeted by those looking for excessive spenders, but management has adamantly supported its financial backing in its proclamation to be profitable by the first quarter of 2002. In addition to the more than $20 million that the company has secured in convertibles and credit lines, the company has an additional commitment from a partner to purchase $24 million worth of stock as a backup. But while the company's money situation appears not to be a worry for the time being, success stories in the e-mortgage market have been few and far between.

Peers mortgage.com and iOwn.com having already gone by the wayside, as many individuals have yet to utilize the full capabilities of these sites. Many browse the Net to obtain the best mortgages available, but only a handful of people actually close their deals online. Unfortunately for the e-lenders, this is where the big money is generated. Lending Tree is trying to bolster its top line growth by not only improving this closing rate, but by also included more lenders to its networks. Out of all of the e-lending models though, analysts consider Lending Tree's to be one of the few likely to gain any significant scale.

Interestingly, investors and insiders appear to be warming up to the stock. From March 19 through March 27, five insiders purchased a combined 40,100 shares at prices ranging from $2.25 to $2.78 per share. Insiders have been gradual accumulators since the company's February '00 IPO, however the current round of consensus buys represents the largest in company history. Director Richard Field led the way, picking up 35,000 shares with his first purchase ever. SVP, CFO Keith Hall, a persistent accumulator since the company's IPO, added 2,000 shares while Director of Marketing Thomas Reddin and Chief Information Officer Eric Cunnliffe acquired 1,100 and 1,000 shares, respectively.

We must note that the stock has moved up in recent weeks as declining interest rates have increased the company's web traffic. If you're less risk adverse, Lending Tree is worth a look. If not, a pullback might be a more plausible entry point. Should the company experience another surge in mortgage refinancings with further rate cuts, another surge in the stock's price may be possible.

Overall weakness in the telecom industry has severely plagued MCK Communications (NasdaqNM: MCKC), marketer of a comprehensive family of solutions of remote voice products. The company most recently reported a revenue shortfall for the second consecutive quarter, however, insiders are displaying confidence in the company's long-term prospects. From March 16 through March 23, seven insiders acquired 26,963 shares, including 22,500 on the open market at $2 to $2.63 per share.

Interestingly, following the company's most recent pre-announcement, the stock held its own the following day. This could be a positive sign, as many feel that most of the negativity surrounding telecom stocks might already be factored into share prices. Of the recent buyers, CEO Glenda Davis admitted that the economic environment facing the company continues to be challenging, but management remains confident about the company's long-term growth potential. It is definitely encouraging to see her backing up her words.