here's one for the fish. You gimme upticks, OK?: "SUTRO & CO. RATING: BUY-SPECULATIVE January 27, 2000
12-Month Price Target: $50 Patrick Houghton (415) 445-8539
phoughton@sutro.com
Natarajan 'Subu' Subrahmanyan, CFA (213) 362-4157
Subu@sutro.com
M. Bijan Saberi (213) 362-3905
bsaberi@sutro.com
U.S. WIRELESS CORP (USWC/OTC - $30 5/8)
INITIATING COVERAGE OF A LEADING DEVELOPER OF WIRELESS LOCATION SERVICES;
RATING OF BUY-AGGRESSIVE GROWTH
Changes Made to: oEstimates oRating Price oTarget Exp. Near-Term Impact:
oStrengthen oNeutral oWeaken
Change Relative to S&P 500 since Buy Rating: oAppreciated more than 20%
oDepreciated more than 20%
52-Week Shares O/S Historical Long-Term Dividend 3-Year Projected
Range Market Cap P/E Range Debt/Cap /Yield Growth Rate
$1-$36 14.2M $434M NA 0% None Nil 40%
1Q 2Q 3Q 4Q YEAR PE PrvEst. Street
3/99A $(0.09) (0.08) (0.09) (0.30) $(0.56) NA NA
3/00E $(0.09)A (0.06)A (0.11) (0.32) $(0.58) NA NA
3/01E $ 0. 0. 0. 0. $(1.85) NA NA
KEY POINTS
£ Initiating coverage of U.S. Wireless with a rating of BUY - SPECULATIVE
£ US Wireless is a development-stage company with likely significant operating
losses for the next two years as it builds out its network infrastructure
£ Potential to benefit from FCC-mandated geo-location services
£ Current FCC time-table requires wireless service providers to select a
geo-location solution by October 2000
£ Current FCC time-table requires wireless service providers to begin Providing
geo-location services by October 2001
£ Believe patented 'Location Fingerprinting' technique has unique advantages to
wireless service providers
£ Long-term potential for revenue generation from E411 services, traffic
information services, and position-enabled Internet applications
£ Estimate US Wireless could begin generating significant positive cash flow by
2H'02 with an estimated 30% share of the E911 geo-location market
£ Estimate loss of ($0.58) per share for FY'00
£ Estimate loss of ($1.85) per share for FY'01
£ Because of anticipated losses in the short-term, we believe USWC stock
performance will likely be driven by successful execution of milestones and
positive market events in the next 12- to 18-months
£ Anticipate selection by two to three wireless service providers, including one
nationwide, in the next 3- to 6-months
£ Anticipate initial network build-out in the next 6- to 9-months
£ Anticipate additional ITS contracts in the next 6- to 12-months
£ Based on comparisons with wireless service providers and other location
technology providers, we believe USWC could trade to $50 in the next 12- to
18-months if these milestones are met
INVESTMENT HIGHLIGHTS
We are initiating coverage of U.S. Wireless with a rating of Buy - Speculative
based on the following factors: 1. The FCC has mandated that wireless carriers
in the U.S. provide enhanced 911 (E911) services by October 2001, 2. Based on
our analysis of alternatives for position location information, we believe U.S.
Wireless has a superior solution for most applications, 3. Widespread adoption
of U.S. Wireless's solution by wireless service providers gives the potential
for significant cash-flow from enhanced 911 services alone in the next 3 to 5
years, and 4. Once U.S. Wireless has deployed its infrastructure, there are
other revenue opportunities from ITS (Intelligent Transportation Systems), 411
(information), and wireless Internet applications that could exceed E911 service
revenues in the long-term (next 5 to 10 years).
We caution investors that US Wireless is a development-stage company which will
likely generate significant operating losses in its early years as it builds out
its infrastructure. However, we believe that US Wireless is a unique situation
with its patented location fingerprinting technique for geo-location using its
RadioCameraT. We believe the performance advantages that US Wireless enjoys
with its 'Location Fingerprinting' method could enable the company to capture a
significant share of the E911 geo-location market. We estimate that once US
Wireless has its infrastructure built out nationwide, given a 30% share of the
current wireless subscriber base of 80 million subscribers, US Wireless could
generate revenue in excess of $150 million per year from E911 services alone by
late calendar year 2002.
However, given the lack of current customers and revenue visibility, we believe
that US Wireless stock price will likely be driven by a number of potential
events:
£ Selection Announcement by Wireless Service Provider: With the October 1, 2000
deadline set by the FCC, we believe there will be announcements by wireless
service providers over the next 3- to 6-months regarding trials and geo-location
solutions selections.
£ Network Infrastructure Build-out: Given that the FCC has mandated that
carriers to begin providing geo-location services for E911 by October 1, 2001,
US Wireless will need to begin building out infrastructure aggressively in the
next 6- to 9-months.
£ Additional ITS Contracts: ITS (Intelligent Transportation System) initiatives
by a number of State DOTs (Departments of Transportation) could provide cost
sharing for infrastructure build-outs.
Longer-term, we believe the valuation of US Wireless stock will likely be driven
more by subscriber growth and revenues per subscriber as new, value-added
services are developed beyond E911. Once US Wireless has its network built out,
we believe its valuation could more closely follow other wireless service
providers.
Valuation Analysis
Based on comparisons with other wireless carriers, we believe that US Wireless
could be valued on the basis of its share of the current nationwide footprint of
80 million subscribers and monthly revenue per subscriber of $0.75. If the
company executes successfully and captures 20% to 30% share in the next 2- to
3-years, this could give a long-term potential valuation of $3 to $4 billion.
Since the company will likely need to raise more equity and debt to support its
infrastructure build-out, the number of shares will likely increase
significantly, impacting our estimate for a long-term share price target.
SnapTrack acquisition provides another valuation comparison: SnapTrack, a
developer of differential GPS technology, was acquired by Qualcomm for $1
billion on January 21, 2000. We believe that Qualcomm will embed SnapTrack's
differential GPS technology into its chipsets for mobile phones in order to
enable handset-based location services. SnapTrack is also a development stage
company, and even though SnapTrack is focused on providing chipsets and software
licenses for handsets rather than becoming a network service provider like US
Wireless, we believe SnapTrack offers a valid comparable to US Wireless. We
believe Qualcomm's willingness to pay $1 billion for SnapTrack's technology is
another indication of the potential importance of wireless location
technologies.
In the near term, we believe the potential for successful execution of the
events outlined above could drive the stock price to $50 per share in the next
12- to 18-months. |
