By Trevor Jensen
CHICAGO–The decline of The Leap Group’s stock since its offering in October does not represent the true worth of the company, the chairman and chief executive officer told shareholders at the public company’s first annual meeting last week.
The stock was issued at $10 per share and quickly dropped to about $6. Chairman Rick Lutterbach blamed the decline on institutional investors known in financial circles as ‘flippers,’ who buy and sell quickly based on an initial upward blip in a stock’s price without regard to the company’s value. That gluts the market and sends the price downwards.
‘It’s very hard to screw up a company that bad in 30 days,’ Lutterbach said. ‘What happened in those 30 days was largely mechanical. . . . From day one, the stock was poorly placed to too many ‘renters.”
The stock dropped even further after it was announced in December that Nike was pulling its Niketown retail account from The Leap Partnership agency in Chicago. The Nike business represented 25 percent of the company’s 1997 revenue, according to The Leap Group’s annual report.
Lutterbach, again defending the core value of Leap, contended the Nike loss was ‘overly magnified’ and said the ensuing drop in stock price was out of proportion.
At the market’s opening on June 4, Leap Group shares were trading at 3 1/8.
Leap’s board of directors responded to the stock’s poor performance last week by authorizing the repurchase of up to 1 million shares for up to $3 million. Taking shares out of circulation is intended to increase their value. The move also ‘sends a message that we have confidence in our company,’ said Beth Pastor, vice president of corporate communications for The Leap Group.
Leap reported first quarter revenue of $4.47 million, up 120 percent from the same period the previous year. It also reported a net loss of $1.15 million, which it attributed to the costs of opening a Los Angeles office, starting up subsidiary Quantum Leap and acquiring YAR Communications in New York.
While defending the fiscal soundness of The Leap Group, the company chairman acknowledged that the investment community has not bought into the company.
‘Brokers called early on to ask if there was a fire or someone took off with the money,’ Lutterbach said. ‘The perception of the company did not match the reality.’
Copyright ASM Communications, Inc. (1997) ALL RIGHTS RESERVED
Get Adweek's Brand Marketing Daily Newsletter in your Inbox
Today's highs and lows of creativity