Argus rates BUY,targets $75,T may acquire ATHM
ATHM has diversified holdings in the computer services industry. It?s chief services are high-speed cable
modem ISP?s, and the Excite portal.
Rating Summary 1/7/2000
BUY-rated ATHM is extremely well positioned to maintain its leadership. The Excite Network continues to add
more features and content. The company ha also created a portal for corporations. In addition, it expanded
its distribution channel, signing up Circuit City, Office Depot and Dell. In all, we believe that all the lights are
green for the Internet services provider.
Recommendation BUY, 12-month Target Price: $75
Ownership
Shrs. Outstanding
Institution Shares
as a percent shrs. out
333,494,016
74,938,160
22.5%
News Analysis 1/11/2000
The merger announced today between AOL and Time Warner validates our recent write up on Excite@Home
(Nasdaq: ATHM). Last week, we wrote that the company?s future is dependent on its ability to become not
only a full service provider, but a multi-connections ISP. Just like AOL, ATHM needs to be able to offer cable,
dial up and DSL access. The FreeWorld service announced last week is a good step in that direction. But we
are skeptical about the chances of a real breakthrough, without changing the corporate structure of At Home.
We think ATHM ought to obtain its independence from its founding cable companies, or get acquired
altogether by AT&T/TCI, creating a potential rival for AOL Time Warner. Today?s merger adds more pressure
on the Board of At Home?s to find a resolution that will unlock the firms inherent corporate value. We are
maintaining our long-term BUY rating on the ATHM shares, which closed on Monday at $40-1/8, up 1-3/16.
(EM)
January 6, 2000 - We are reiterating our BUY rating on Excite@Home (NASD: ATHM) even though we
recognize that the ATHM shares may linger in the $37-$45 range for quite some time. We believe that what
enabled At Home to be the leading broadband ISP has turned into its main handicap. The relationship with
its cable partner, based on exclusive rights exchanged for control, is now holding back the company.
We believe that the ISP has to free itself from its owners in order to pursue its own interests according to its
agenda. While the issue of a tracking stock in the fall is an improvement, we don?t think it will solve the
situation. Actually, we are quite skeptical about its chances of being implemented at all.
Being independent would enable Excite@Home to become a true multi-band/multi-device Internet provider.
Today, ATHM faces detrimental limitations on dial up access. At Home?s customers would probably like to
access their account through a regular phone line when they are travelling, or through a high speed LAN
connection from work. However, arrangements between At Home and any telecom company other than
AT&T would position these two firms as rivals when the latter is the controlling shareholder. In addition,
Excite@Home might then have opportunities to co-brand sites with distribution companies, in line with what
AOL, Yahoo! and Microsoft have done with consumer electronic stores and other brick-and-mortar retailers.
Today, the provider announced a deal with 1stUp.com (a CMGI company) to offer free narrowband access to
the Internet. The new "FreeWorld powered by Excite" service will rely on advertising and e-commerce
revenues. Users will have a permanent navigation bar on their desktop while connected, displaying ads and
later on customizable content. The new offering leverages content already developed by Excite, which also
brings a default personalized start page.
Valuations have not moved much on the news as the market reckons that this is a niche strategy. The rest of
the narrowband market remains to be conquered, and in the current context, it is out of reach for
Excite@Home. We continue to like the company?s technology and fundamentals. We believe in its potential.
However, we are waiting for a resolution of the corporate control issue, which is key to unlocking shareholder
value. At Home?s rights expire in 2002. In the meantime, it may agree to cede them for its freedom. We
believe the stock would then jump sharply. Patient and long-term investors would then reap the benefits.
Our twelve-month target price is $75. The ATHM shares traded midday at $40-1/8, up 3/16. (EM)
December 7, 1999 - We are reiterating our BUY rating on Excite@Home (NASD: ATHM). AT&T?s decision,
reaffirmed on Monday, to open up its systems once ATHM?s exclusive rights expire was expected. Until
mid-2002, Excite@Home will be the only high-speed Internet access provider over the former TCI?s cable
plant, unless it voluntarily decides to give these rights up. We warn investors that volatility is likely to
intensify as the media keeps on pounding this issue and until AT&T and the FCC prevail in the Portland
appeal case. We view ATHM as the uncontested leader in the broadband residential Internet access market.
We believe that AT&T is willing to put pressure on At Home for the sake of its merger with MediaOne. Their
relationship should improve afterwards, if only because AT&T would not want to destroy shareholder value
in a firm in which it is the largest shareholder.
In order to facilitate the regulatory review of the MediaOne transaction, AT&T has set up a framework with
Mindspring that will allow the latter to offer high-speed Internet access over AT&T?s cable systems in three
years. Then, AT&T will open its systems to ISPs willing to enter into a commercial arrangement.
The recent ATHM announcement related to the issue of a media tracking stock was a prelude to such an
announcement from AT&T. In effect, the tracking stock will separate the media from the connectivity
operations, enabling both arms to deal with other ISPs. This will prepare the company for the post-2002
period when they have to compete with other ISPs on the same cable pipes. In the meantime, At Home is
building itself into a full service provider, adding more services and features, which will make it a stronger
competitor to AOL and others when its rights expire.
In our view, ATHM has the upper hand, because time helps it strengthen and it does not have to come to the
negotiation table unless it feels it can get attractive terms. Moreover, should ATHM decide to forego these
rights after a deal, it would be a win-win situation. Under that scenario, the marketing muscle of AOL and
others, while taking some potential customers away from the Excite@Home branded service, would also
boost the indirect number of subscribers. The current business model implies the capturing of subscription,
advertising and e-commerce revenues from 3+million users by December 2000 (as we forecast). Instead, the
company would get these three revenues sources for a fraction of these users that would be its own, but also
at about two-thirds (or more) of the subscription fee that rival ISPs? users would pay on a monthly basis. If,
as we believe, the overall impact is that at the end of the year, substantially more than three million web
surfers use the Excite@Home platform, ATHM would end up having greater revenues. The ATHM shares
closed Monday at $49, down 3-1/16. (EM)
November 23, 1999 - Excite@Home (NASD: ATHM) has announced plans to issue a tracking stock for its
media properties. This move boosted the ATHM shares to an intra day high of nearly $57 3/4. The new
structure, to be implemented in the third quarter of 2000, will provide Excite with more flexibility for
additional purchases that can then be stock-financed; while At Home, the connectivity arm, will have a clearer
focus on the subscription business. In addition, the new structure would allow for an easier transition to the
post-2002 period, when the ISP looses its exclusive rights over the system plants of its cable partners.
Finally, this helps remove the overhang that penalized the ATHM shares for so long, a result that was not
achieved with the Bluemountain.com acquisition.
While more details will be available in the next few months, once it issues a proxy statement, the company
disclosed that the distribution would be on a pro rata and tax free basis to current shareholders. AT&T and
the other cable companies will have minority representation on the media tracking?s board. This should
provide the new unit with more freedom and better speed to execute on its strategic initiatives.
Tracking stocks have several advantages. They enable a company to tie management compensation to the
performance of the assets they are directly responsible for. They also present a better valuation vehicle,
since they isolate different activities and enable each one to be valued according to its specific metrics. In
addition, in this specific case, the two arms will have the ability to deal with other companies, post-2002, so
that At Home can provide high speed access to other ISPs, while Excite would be able to do the same for the
content. A spin off would be prohibitively expensive for the following three years for tax reasons. We
reiterate our BUY rating and target price of $75. The ATHM shares closed Monday at $57, up 5-11/16. (EM)
October 25, 1999 - Excite@Home (NASD: ATHM) is buying Bluemountain.com, the leading web-based
greeting cards company for $780 million ($350 million in cash and $430 million in stock). An additional
payment of up to $270 million (in shares) depends on Bluemountain?s performance during the year-end
holiday season. This deal confirms that ATHM is sticking to its strategy to become a full service provider,
inclusive of connectivity, broad content and e-commerce. In our previous write ups, we clearly indicated that
such an acquisition would be proof that it would continue in its successful path. Hence, we think this step
should remove the clouds that were hanging over the company, and were pressuring its stock price. This is a
clear signal that the ISP will not spin off Excite or become a mere pipe, as AT&T was rumored to seek.
Bleumountain.com is the 14th most visited web property on the Internet, and third among e-commerce sites,
behind Amazon and eBay. The electronic card site counts 9 million unique users per month and a 65%
market share. It also processes more than one million transactions per day. Besides the natural cross
marketing opportunities between Excite and Bluemountain --which should help ATHM acquire new
subscribers and registered portal users faster -- the company will be more attractive for advertisers, as it can
offer a larger viewer base with a stronger online purchase potential. Importantly, there is also a very good fit
between the different features that the ISP has built over the last few months. For instance, the free online
calendar features can easily combine the reminder function with the suggestion of a greeting card or the
purchase of flowers or a present in the case of a birthday or wedding.
We reiterate our BUY rating on the ATHM shares and our target price of $75. We believe Excite@Home is
likely to near 1.1 million subscribers at the end of December and surpass 3 million by the end of the following
year. The ATHM shares traded midday at $39-15/16, up 7/8. (EM) |
