H&Q rating reiteration: Exodus Communications (EXDS)
Rating: BUY - FOCUS LIST
August 16, 1999
Erik Suppiger
Momentum Continues At Exodus: Reiterate Focus BUY
We believe that Exodus's strong business momentum has carried into this quarter and that bookings
growth is robust. Customer adds appear healthy and its data center buildout remains on track.
Market growth is explosive, benefiting from growth in enterprise demand. We also believe that
Exodus is developing a number of new managed services with various partners that will enable the
company to further differentiate its services. Therefore we feel that the company is well positioned
to extend its market lead and we reiterate our Focus BUY rating.
FY Ends Dec
Current Price $67 1/4
52-Week Range $4-74
Market Cap(M) $5,649
Shares Out(M) 84.0
Book Value $(0.19)
Net Cash/Share $4.02
3-Year EPS Growth 100%
CY98 P/E-to-Growth NM
1998 A 1999 E 2000 E
Q1 EPS $(0.23) $(0.13)A $(0.17)
Q2 EPS (0.18) (0.25)A (0.13)
Q3 EPS (0.90) (0.28) (0.08)
Q4 EPS (0.25) (0.26) (0.04)
FY EPS (1.56) (1.07) (0.41)
FY REVS(M) 52.7 216 454
CY EPS (1.56) (1.07) (0.41)
CY P/E NM NM NM
Exodus is a leading provider of Internet Data Center solutions which include server hosting, Internet
connectivitiy, colaborative systems management and Internet technology services. It delivers services from
geographically distributed data centers that are connected by a redundant high performance dedicated
network.
Notes: a, b
We believe that bookings growth so far this quarter have been stellar. The company now hosts 36
of the top 100 most visited Web sites, up from 28 just a few months ago. The company also hosts
6 of the top ten Web sites. We believe that Exodus' strong performance is the result of the
company extending its market leadership as well as dramatic growth in overall demand.
We also believe that the company's managed services are performing quite well and that Exodus
is developing additional services. In fact, we think that Exodus will announce some new services
soon that leverage applications developed by technology partners, much like the company's
recently announced email service. We view the additional services positively as the company's
managed services provide considerable value that is highly differentiated from competitive
solutions. In addition, managed services are highly profitable, they improve account control and
they are a challenge for competitors to duplicate.
Exodus has completed the implementation of its caching services and we believe that the caching
performance is outstanding. Notably, this service is strategic to Exodus because it enables
customers to leverage Exodus' geographically distributed network of data centers in order to
significantly enhance Web site access. We also believe that Exodus is rapidly integrating
Cohesive Technology's operations and that Exodus recently hired a new vice president to
spearhead the process. We think that the caliber and scope of consulting services that Cohesive
Technology brings to Exodus is unique in the industry and that it will be difficult for competitors
to duplicate the services.
Recommendation: We believe that Exodus dominates the complex Web hosting market and that
the company is extending its leadership. The market's growth prospects are extremely
compelling, particularly benefiting from the mainstream adoption of the Internet by large
enterprise organizations. Exodus has a highly differentiated product offering and it continues to
enhance its services. The company has the largest installed base of any complex Web site host
and the caliber of its customers is a testament to the quality of its services. The company has
delivered sequential growth of 40% or more for 11 straight quarters and we believe that it will
deliver more than 40% again this quarter. Therefore, we believe that Exodus represents an
extremely compelling investment opportunity and we urge investors to purchase the stock. |
