NewsMax By the Numbers

Would you buy stock in this company? Should anyone?

By Terry Krepel
Posted 5/30/2002

There's NewsMax the web site, NewsMax the magazine and NewsMax the infomercial. Are you ready for NewsMax the IPO?

It's coming. NewsMax Media Inc., the parent company of all things NewsMax, filed its intention with the Securites and Exchange Commission in March to issue 1 million shares of stock to the public with the intention of raising about $5.7 million assuming an proposed offering price of $7 a share.

In the past, NewsMax has been tight-lipped about its ownership and finances. But doing an IPO requires all sorts of filings with SEC, all the way down to building leases and employment contracts. The most interesting of these documents by far is the preliminary prospectus on file that details, among other things, NewsMax's finances and ownership.

Here are some highlights of the prospectus:

NewsMax has lost a lot of money. Nearly $11 million, in fact, since the site's launch in 1998. NewsMax lost roughly $8.4 million of that in 2000 and 2001.

The majority of NewsMax's revenue in 2001 came from product sales -- 52.8 percent, compared to 19.5 percent in 2000. That jump mirrored a huge drop in advertising revenue, from 42.3 percent of total revenue in 2000 to 15.9 percent in 2001.

Richard Mellon Scaife has a stake in NewsMax. According to the prospectus, Scaife owns about 7.2 percent of NewsMax Media, expected to drop to 5.8 percent after the IPO. That's not exactly surprising, given that CEO Christopher Ruddy used to work for Scaife at his newspaper near Pittsburgh. Scaife's official stake -- and you have to wonder, given Scaife's reputation as the moneybag behind a lot of hardline conservatives, if he didn't kick in even more than his official share of the company indicates -- makes him NewsMax's third largest shareholder. At the top is Ruddy, with 32.6 percent (27.1 percent after the IPO), followed by Michael Ruff (with 25 percent, or 20.3 percent after the IPO), described in the prospectus as a former real estate developer in Dallas and current president of Icarus Investments, a venture capital firm. There are a total of 190 stockholders of record.

All totaled, Ruddy and the company's directors -- who also include Arnaud de Borchgrave, late of the Washington Times; former Navy admiral Thomas Moorer; and Lord William Rees-Moog, a former editor and current columnist for the Times of London -- control about 64 percent of NewsMax Media through stock ownership and stock options, which would drop to 53.5 percent after the IPO. Interestingly, Scaife is not listed as a company director, but his stock is counted with the rest of the other named directors.

Christopher Ruddy is doing pretty well for running a company that has lost $11 million. According to the prospectus, Ruddy made about $97,000 plus stock options in 2001. The previous year he made $65,000 with a $30,000 bonus. (In 1999, he's listed as making no salary but a $10,000 bonus and a million-plus shares of stock and stock options.) So that's how he can afford to be seen in swank New York eateries. Ruddy's salary for 2002 is described thusly: "Mr. Ruddy's annual base salary ... is $125,000, which was reduced to $25,000 effective February 2002, but will be restored to $125,000 upon the closing of this offering."

NewsMax hasn't exactly been, uh, honest about some of these numbers. Ruddy once claimed NewsMax became profitable in November 2000; please refer to the earlier paragraph for proof otherwise. NewsMax also claimed in January that the paid circulation of its magazine was 240,000, and in a recent e-mail to readers, claimed "more than 300,000 paid readers ... We have just surpassed almost every conservative publication in America." But according to the prospectus (filed in March, if you'll recall), the paid circulation is listed as "approximately 59,395." Perhaps NewsMax understands that while you can get away with lying to magazine reporters and your own readers, it's generally a bad idea to lie to the government.

The NewsMax demographic is surprisingly affluent. According to the prospectus, data collected in 2000 shows that NewsMax's "user base" has some money and power: 70 percent with an annual income of more than $50,000; 25 percent with a net worth of more than $500,000; 25 percent are "top level management/executives/directors."

So, is this a stock worth investing in? Maybe not if you're counting on making any actual money from it. Aside from the typical disclaimers that no return on investment is assured and the board of directors can do whatever it wants with the money whether it's good for the company or not, there's this one: "You will suffer immediate dilution of approximately 81.1 percent of your investment." That doesn't sound good. Neither does a mention of a 1:3 reverse stock split.

The prospectus also issues one more caveat: "Our ability to compete depends on many factors, including the originality, timeliness, comprehensiveness and trustworthiness of our content ..." Let's see. Running Judicial Watch press releases as NewsMax articles fails on originality, and its heavy bias in telling stories with a conservatives-good, liberals-bad slant knocks them out in the comprehensiveness and trustworthiness department.

Should anyone by stock in NewsMax? I solicited the opinion of Mike, an investor friend with years of experience in the stock market who knows how to read a prospectus, and here's what he said:

This company is no better than the hundreds of dot.com startups from the 1990s that failed because they had no real way of increasing shareholder value. They did lots of marketing as NewsMax plans to do, but they had no way of capturing a profitable return on those marketing gimmicks. NewsMax has subscription fees, but there is still too much free stuff on the Internet. And it's hard for NewsMax to compete when its news and commentary isn't as comprehensive as, for instance, salon.com. The IPO is a way to borrow from Peter to pay Paul, but Peter will walk away fooled, gypped, left with nothing but worthless shares. Ruddy keeps making money off the backs of ignorant stockholders. When are stockholders going to stand up and ask for real shareholder value, real profits, real cash in the bank, real significant assets (not just a few computers). Good companies such as Berkshire Hathaway have real cash ($40 billion in Berkshire). NewsMax has nothing but air, pie in the sky, emptiness.

(Speaking of Salon.com as my investor friend did, it's worth pointing out that NewsMax seemed to be hoping for failure when Salon started charging for some of its content last year, gleefully noting that the "blatantly pro-Clinton" site's stock "has plunged into the basement" and, later, happily reporting when Salon's stock was about to be delisted by Nasdaq.)

Potential investors in NewsMax might want to ask Ruddy and other company officials exactly how much money Richard Mellon Scaife has kicked in, who exactly are those 190 shareholders of record and whether any of them are anything other than rich conservatives with a little money to throw away or folks given a little piece of the action in exchange for their (Clinton-bashing) stories -- Larry Patterson comes immediately to mind. And there's one more question that's worth asking: whether kneejerk conservatism and Clinton-bashing is really enough to sustain a publicly owned company.