Nasdaq Reprieve: Lifeline or Life Support?

It’s no secret that technology firms are supposed to benefit from the recent decision by the Nasdaq to let stocks trading below the magic US$1 level remain on the exchange. But will they?

The Nasdaq’s decision is probably well-intentioned. However, the exchange likely has its own interests in mind as well — and its own reasons for changing the rules.

The move to keep penny stocks on board is painful reminder of how far down we’ve come from the peak. It is also proof that we haven’t reached the depths of the valley just yet.

More to the point: It isn’t going to help.

Treading Water

A host of dot-coms stand to extend their stays on the Nasdaq thanks to the more lax listing rules. E-commerce names that fit the bill when the rule change was announced include Barnesandnoble.com (Nasdaq: BNBN), Autobytel (Nasdaq: ABTL) and Drugstore.com(Nasdaq: DSCM).

Being booted from the Nasdaq is a death knell for companies. Even in boom times, over-the-counter stocks are anathema to all but a few specialized investors, so raising money without a listing is a long shot.

Most of the publicly traded e-tail firms that have perished were delisted along the way. Some, like Webvan, hung on to a Nasdaq listing until the bitter end. Others, like eToys, sputtered along for a short while after being delisted.

Staying on the exchange might keep a company alive for a bit. But as for restoring long-term good health, that’s another matter.

Sooner or Later

Investors will know that those companies that are still on the Nasdaq — but trading incents instead of dollars — are only there by the good graces of the exchange. So they will be just as taboo as the stocks already kicked off.

The Nasdaq has been the stock market for the New Economy — through boom and bust alike. With no companies coming through the “in” door via initial public offering, Nasdaq needs to shut the “out” door — or risk becoming a ghost town.

Nasdaq’s chief executive officer said the move was intended to “provide greater stability to the marketplace during these times of economic uncertainty.”

It might. For a while. But when the grace period ends, there’s likelyto be a logjam of companies waiting to be evicted or begging for one lastchance to prove they can play with the big kids on the block.

Stay of Eviction

Don’t get me wrong — the reprieve is a fine short-term idea. There’s no reason that anyone needs to add to what has officially become economic misery. The unemployment office is crowded enough already. No need to send more tech workers there to confuse things this week.

However, only near-divine intervention can make the Nasdaq rule change work in the long run.

A sudden economic upturn qualifies, of course.

If companies get back to business again in 2002, the problem will be solved. Businesses will start to claw their way back out of the stock-price black hole on their own, without help from anyone.

Broiled, Not Baked

That’s what has to happen. The fundamentals have to change. Companies have to execute better, and be more aggressive, more hell-bent on making it on their own.

Cooking the books in one way or another, which is all the Nasdaq reprieve does, is not the answer.

That’s cosmetic. And that’s fine. For what it’s worth.

What do you think? Let’s talk about it.