TO ALL,
Prudential securities upgrade, whatever it is worth.
---------------------------------------------------------------------.Company Description
Excite@Home Corp., (ATHM), based in Redwood City, CA, is an Internet-based
content aggregation and distribution company. Through the Excite portal, the
company offers Internet navigation services. ATHM's services, including audio,
video, chat, news, and proprietary advertising, are accessible via cable modems
connected into a high speed computer network.
Investment Opinion: 06/07/99 at $95 3/4
We rate ATHM a STRONG BUY for the following reasons:
* Fueled by increasing complexity and size of content over the Internet, we
believe that the ATHM franchise will parallel many of the growth
characteristics demonstrated by successful market leaders such as America
Online (AOL). Accordingly, we believe that ATHM shares are positioned for
aggressive growth and should be a core holding in any Internet-oriented
portfolio.
* Shares of ATHM encountered significant weakness recently following a court
ruling in Portland, Oregon, stating that AT&T (T) must allow open access to
their cable lines to Internet service providers (ISPs). We believe this sell-
off was an over reaction based on fears that cable systems would be forced open
nationwide, making increased competition to ATHM an imminent event. We do not
believe this is the case as the appeal process following this decision is
likely to take several (4-8) quarters to be resolved. We see no near term
threat to ATHM's membership growth - the key to our valuation of these shares.
* Taking a page from AOL's playbook, ATHM's recent acquisition of Excite
(XCIT) will enable the aggregator of broadband outlets to reach an
exceptionally fertile feeding ground of narrow-band users. More importantly,
we expect that a combination would yield almost immediately positive results as
measured by the number of online advertisers participating as @Home partners.
Importantly, this acquisition makes it feasible for ATHM to undertake a
national advertising/brand awareness campaign. As the Excite@Home brand gains
greater recognition, we believe this provides a further catalyst to subscriber
growth and interest in broadband services in general.
* We believe ATHM is far more than just an Internet access company. Like
Amazon.Com (AMZN), we believe ATHM has significant plans for audience capture
and direct marketing with cable based delivery simply being the first step.
Expected future products & services will include set top access, support for
DSL (digital subscriber line) products, and directed licensing rights (and
revenues) as the company duplicates its existing model into new markets, both
domestic and international.
* We continue to believe that use of a discounted cash flow (DCF) based
analysis and valuation on a per-subscriber basis, remain the most effective
vehicles for assessing the value of ATHM shares. As the company faces
accelerated growth opportunities and a once-in-a-lifetime chance to establish,
and/or further market share, we expect that operating expenses could show
significant volatility. Analysis completed on the basis of break-even or
profitability in any given quarter could prove less than reliable should the
company adopt an aggressive approach at capturing market and mind-share. The
combination of our DCF and per-subscriber analysis yield a price target of $250
per share.
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