Ron, Finally some good coverage with on-the-mark bullseyes.
My bold added.
08:32am EST 2-Feb-00 Janco Partners, Inc. (Ted Henderson (303) 770-3200) ATHM
Janco Partners Upgrades Excite@Home to BUY from ACCUMULATE
Recently we commented on Excite@Home's fourth quarter earnings call. We stated that we were encouraged with the way a fiery George Bell took the reins as the new CEO, stating that "Excite@Home continues to be the undisputed leader in broadband and is nobody's stepchild". We also commented that we thought management did an outstanding job of reminding analysts and investors on the conference call of how well positioned this company is to secure distribution due to their headstart in securing broadband affiliate distribution. At $42 5/8,
we continued to rate the stock as an ACCUMULATE but promised to re visit our rating during the first half of the year and stated that we would be buyers in the $35 range. Well, here we are twelve days later and 17% lower and we are upgrading Excite@Home to a BUY.
We have remained on the sidelines for over a year on Excite@Home and those familiar with our research are keenly aware of our execution, deployment and regulatory concerns that have represented the foundation for our downgrade in January 1999 at $39 1/2. So, what has changed? First and foremost, we view success in the broadband and Internet arena to be positional and we have always liked the unique position of Excite@Home's affiliation with over 70 million broadband homes. Second, we were concerned that during 1999, the regulatory
uncertainty regarding open access would cast a cloud over those competing in the broadband Internet distribution arena. While we don't think that open access will go away, one of its loudest supporters (AOL) will in all likelihood be much quieter on the issue moving forward. Also, we believe that Internet data has already become a commodity with everyone offering a different path to the same
stuff. As such, open access is a virtual certainty (eventually) and we want to see Excite@Home make hay while the sun shines during its exclusivity period with the cable operators -- they begin to expire in 2002. Additionally, the regulatory concerns simply dovetailed with our execution and deployment concerns; in other words, we felt that regulatory uncertainty would help to further slow execution and deployment.
While we still believe that execution and deployment will be slower than expected, we do not believe that this is unique to Excite@Home. In other words, we expect that everyone in the high speed access race is facing the same issues and no one has leapt out of the gate in securing distribution. (Please refer to our recently issued Study of High-Speed Internet Access (part 2 of 3) which discusses our observations on a Rhythms NetConnections installation.) In fact,
we would submit that if anyone is "leading" in the deployment of broadband Internet access, it is Excite@Home who ended 1999 with 1.15 million subs, reaching the critical 1 million mark in three years, a milestone that AOL took nearly 7 years to reach.
While execution and deployment remains an issue, it does not impact the enviable position that Excite@Home enjoys with their cable affiliates. These affiliates have a vested interest in terms of both money and time invested in seeing the service succeed on a large scale. They have already begun to market and brand their service under the @Home moniker in their respective franchise areas.
Accordingly, the last thing we would expect operators to do is turn their backs on Excite@Home when their exclusive agreement expires. On the contrary, we believe that we will see attractive renewals (how strong will depend on the regulatory front) that will have all the MSO affiliates offering the Excite@Home service for many years to come.
Additionally, we have been getting feelers from cable operators regarding the street's reaction to a "bite the bullet" mentality of aggressively pursuing the rollout of high speed access service. The "bite the bullet" mentality is to suffer currently the inevitable hits to cash flow growth (in one fell swoop versus slowing bleeding out the impact) that will accompany such an aggressive marketing and deployment push. Our response is to "bite the bullet" --- NOW. The
high speed access market is not all that different than any other subscription based market. The only focus at this point in the game should be to get the subscriber! We believe that the operators will take the necessary hits to really focus on high speed access in 2000 and that the unique position of Excite@Home will be recognized (and rewarded) by the market.
What we have been looking for in Excite@Home since our downgrade a year ago is a reasonable entry point for investors looking at this space long term. We believe that anyone looking at this space in the short term (and being successful as investors) must be a whole lot smarter than we are. We think that the space is just starting to define itself and we are looking for the players that we believe will stand the test of time. Make no mistake about it - the Internet will be available in virtually every home with a television set, eventually. There are few companies positioned as well as Excite@Home to take advantage of this burgeoning utility like service to the home. Excite@Home and their affiliates ability to direct a targeted, cost efficient advertising campaign to consumers will establish their brand in the market and allow them to gain an attractive share of the high speed access market. We recently saw the largest merger transaction in history (AOL/Time Warner) validate something that
Excite@Home did over a year ago by marrying Excite content with At Home distribution. We have always liked Excite@Home from a long-term perspective, even when their share price seemed to get a little ahead of itself during 1999. Our affection for this Company is based on our belief that when the competitive dust has settled, Excite@Home will remain standing as a significant player in the high speed Internet arena. We don't think there are a lot of companies that
we can confidently say that about at this point in time. The fact that
Excite@Home shares have opened up an attractive entry point for investors this early in the year simply provides an early window to take positions for the long term. BUY Excite@Home. |
