PW's Hodulik on WCII last week: <<WCII_datacenter.doc>>
WinStar Highlights Data Center Initiatives
January 6, 2000
KEY POINTS
* WinStar announced plans to build data centers in New York City and San Francisco joining sites in Minneapolis, Brussels,
Seattle, Washington and Boston that are already in service. The company currently has over 100,000 square feet of data center space
up and running.
* The new data centers will initially range in size from 20,000-75,000 square feet, positioning the company to address the
small and medium-sized business and the ASP market. Large enterprise and dot.com companies generally require 20,000-30,000 square
feet for a full-service site.
* This fits with WinStar's strategy to offer a full portfolio of telecom and data services to the small and medium sized
business market including voice, enterprise data, web hosting and outsourced applications. These facilities will also provide the
platform for the company's initiatives with Microsoft - including support of Windows 2000 functions on an outsourced basis.
* This latest announcement is further affirmation that the company is moving aggressively toward high margin complex IP and
other data services that best leverage its end-to-end broadband fixed wireless networks.
* WinStar shares have been hit worse than other stocks in the group during the recent downturn in the market, despite our
expectations for a strong fourth quarter (meeting or exceeding our revenue and EBITDA estimates for $137.7 million and ($61.3)
million, respectively) and the company's fully funded status. Additionally we believe more data center/ASP announcements are in the
works that should drive the stock.
* Currently the company trades at 11.4x our 2000 revenue estimate, a discount to the 31x-33x average of comparables such as
NXLK and TGNT, and the significantly higher multiples of ASP competitors. We maintain a Buy rating and $90 price target based on
our relative multiple analysis.
* Risks include technological change, adverse regulatory rulings, mounting losses, continued reliance on the capital markets,
high degree of operating and financial leverage and increasing competition from better established carriers. |
