No payoff yet for PSINet
By Suzanne Galante
April 22, 1997, 12:45 p.m. PT
After shedding the burden of its software venture,
PSINet (PSIX) announced it isn't as far in the hole
as analysts had expected.
Net losses for the first quarter ending March 31
were $9.3 million, or 23 cents per share, compared
with net losses of $14.9 million or 39 cents per
share in the first quarter of 1996.
Wall Street analysts were expecting the commercial
ISP to report a loss of 35 cents a share, according
to FirstCall.
Timothy Summers, an analyst with Principal
Financial Securities, said that margins were better
than he had expected and that the company is on its
way to achieving cash-flow neutrality, which is a
financial benchmark also known as EBITDA. "It is a
significant milestone toward eventually becoming
profitable," he added.
The first-quarter net
loss included a $1.5
million nonrecurring
expense and a
one-time net gain of
$5.7 million associated
with the sale of
InterCon Systems.
Without these charges
and gains, the net loss
would have been $6.8
million, or a loss of 33
cents a share.
The company said that
getting out of the
software business was
the final step toward
refocusing on its core
business: providing
Internet services to
businesses.
Revenues grew to
$25.6 million, up from
$17.2 million reported for the corresponding quarter
last year, and increased 12.5 percent over the fourth
quarter of 1996.
At the end of March, customer totals more than
doubled to 20,900 corporate accounts, compared
with 10,300 recorded at the end of the first quarter
of 1996.
But one analyst noted that even though PSINet
doubled in customers from one year to the next, the
company is not keeping up with the explosive
growth rate of the Internet.
Summers countered that in a relatively young market
with not a lot of benchmarks, you have to let the
numbers speak for themselves. "If they can double
the size of their market growing year over year, they
are clearly headed in the right direction."
The company said its wholesale business also grew.
However, one analyst who asked not to be named
said he doesn't think that can be profitable. He
explained that as the ISP market consolidates there
will be an ever-shrinking number of ISPs that need
network support.
PSINet says it is making the most of its network.
"Since we already have a network built, [providing
ISPs with a network] is a minimum investment. The
wholesale business is the gravy," said CFO Ed
Postal.
The company is confident that it will reach its
financial benchmark during the second quarter in
May or June, according to Postal. "We are focused
on more realistic planning. Generally speaking, most
networks are built on speculation, but we grow our
network on a case-by-case basis...We build to meet
demand."
He added that building a network based on need is
much more cost-effective because the company
knows that every expansion it makes will be used,
as opposed to expanding for the sake of expanding.
During trading today, PSINet's stock was trading
level with yesterday's close of 6-1/2.
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