URL: cbs.marketwatch.com
Content delivery sizzles
Exodus, Xcelera, Digital Island, Akamai race higher
By Bambi Francisco, CBS MarketWatch
Last Update: 12:51 PM ET Mar 22, 2000 Internet Daily
Net Headlines
NEW YORK (CBS.MW) -- Internet stocks advanced Wednesday with content delivery stocks taking the lead after Web hosting leader Exodus said it's taking a stake in Mirror Image.
The Goldman Sachs Internet Index extended Tuesday's gains. The Net barometer jumped 2.7 percent by midday, following a 5.1 percent rise Tuesday after Fed policy-makers made their highly anticipated move to raise interest rates by a quarter of a percentage point.
The Amex Internet Index added 1.5 percent, after tacking on 4.4 percent by the close Tuesday.
On the map
Shares of Xcelera.com (XLA: news, msgs) jumped 28 percent to 222 1/8. Exodus is paying $637.5 million in cash and stock for a 15 percent stake in Mirror Image, a unit of Xcelera.com.
Exodus (EXDS: news, msgs) Chief Executive Ellen Hancock told CBS.MarketWatch.com that a small investment as opposed to an outright purchase of Mirror Image made more sense at this time. Hancock said she had spoken to other companies that offer content distribution before deciding on Mirror Image. Those include privately-held Adero, Sandpiper, which is owned by Digital Island (ISL: news, msgs), and Cacheflow (CFLO: news, msgs).
As part of the deal, Exodus will be the exclusive reseller of Mirror Image technology to Exodus' more than 2,200 customers. And Hancock said that Mirror Image's Content Access Point, or "CAP" architecture, will be the exclusive content delivery product sold by Exodus.
The companies plan to have 9 CAPs deployed by the end of the month, executives said. They plan to roll out 11 in the second quarter and 15 by the second half of the year. At $2 million per CAP, that's about $70 million to build out the technology. General availability of the product is expected by the third quarter of this year.
A network build out would also increase the need for more caches. That would be a positive for Inktomi (INKT: news, msgs), since both Mirror Image and Exodus buy Inktomi caches and content distribution technology. Shares of Inktomi gained 3 to 220. Shares of Exodus, meanwhile, soared 9 to 164 1/2. Following the news, shares of other content delivery companies were bid higher.
Akamai (AKAM: news, msgs) added 17 9/16, or 9 percent, to 215; Digital Island (ISLD: news, msgs), which offers both hosting and content delivery, saw shares run up 8 3/16, or 12 percent, to 78.
On Tuesday, Jim Linnehan, an analyst at Thomas Weisel Partners, pointed out that Digital Island shares had lost more than 20 percent since the company priced a follow-on offering on Feb. 25. "We believe this weakness is largely due to selling pressure from insider shares that became unrestricted following the offerings."
The analyst also pointed out that Digital Island is trading at 31 times projected 2001 sales vs. the 130-times multiple that Akamai sports. Thomas Weisel Partners co-managed Digital Island's IPO last June.
Speaking of initial public offerings, Xcelera executives said they are "planning" on an initial public offering of Mirror Image by the end of the year. Executives didn't provide sales projection for the IPO, but in 1999, Mirror Image had some $1 million in sales, they said.
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