PSINet’s Stock Plunges 56% on Earnings Loss, Forecast

Shares of PSINet plummeted 56% Thursday after the provider of Internet services to businesses warned that fourth-quarter earnings could be below expectations.

The firm also said it was considering strategic alternatives, as it reported a large loss for the third quarter.

Shares of PSINet plunged $3.80 to close at $2.94 on Nasdaq, the lowest since 1997.

PSINet Chairman and Chief Executive William L. Schrader blamed the results on a general downturn in the sector and said a “general recession” was taking hold in the economy.

“Current market conditions are quite challenging, as the slowdown in Internet spending becomes more apparent every day. PSINet needs to take clear and decisive steps to preserve and enhance value for our shareholders and bondholders,” he said.

The company will conduct a financial and operational review to help determine whether shareholders “are better served by remaining independent or seeking other strategic alternatives.”

Schrader said the company would consider all strategic alternatives, including a possible sale of the company.

That review is expected to be concluded in February, and the company won’t provide additional earnings guidance until then.

In the meantime, the Ashburn, Va.-based company plans to cut capital expenses by $100 million to $200 million and identify assets and businesses that can be sold.

For the quarter ended Sept. 30, PSINet posted an operating loss of $182 million, or 95 cents a share. Including one-time charges--mostly related to PSINet’s acquisition of information technology consulting company Metamor Worldwide Inc.--the company’s net loss ballooned to $1.4 billion.

A year ago the company lost $82.3 million, or 68 cents a share.

Revenue in the third quarter jumped 151% to $352.5 million. But Merrill Lynch analyst Thomas Watts said revenue overall was 8% short of expectations.

Schrader said a downturn in Internet consulting revenue from Metamor and its Expedior subsidiary surprised executives, and he now believes Metamor “was purchased at the wrong time and we paid too much.”

Also Thursday, Harold “Pete” Wills resigned as president and chief operating officer and from the company’s board.