Web Hosting . . . Exodus provides co-location-based Web hosting and
managed network services for companies with mission-critical Internet
operations. Exodus expects to grow revenues at a 101% CAGR 1999-2004.
According to the Wall Street Journal Exodus may buy Global Crossing's
Global Center web hosting subsidiary for $6-$7 billion. The deal would
help create enormous scale in web hosting and could also give Exodus
direct access to Global Crossing's international fiber network. Exodus's
market dominance in co-location hosting and rapid movement up the managed
services value-chain should make them a key player as the Internet
Infrastructure And Services industry consolidates. Investors will react
positively to both the growing economies of scale of the proposed merger,
plus the cost synergies that could be derived from linking Exodus centers
to Global Center's international fiber network. Exodus would pay $6-$7
billion for Global Center. Global Crossing had previously announced it was
considering a tracking stock for its hosting subsidiary. If the reported
deal were all in stock this would imply roughly a 32% equity stake for
Global Center. However Exodus recently raised over $1 billion dollars in
debt and announced a $2 billion shelf offering and proposed $750 million
revolver, which could also be used to partially fund the purchase,
potentially lowering the Global Crossing stake to the 25% reported in the
Journal.
Expect web hosting floor space to more than triple during 2000. Eventually
this should lead industry consolidation that will award a premium to those
companies that have dominant scale, a competitive cost base, and a
position at the high end of the value chain. Exodus is adding the value
added services to support premium pricing. The reported combination would
further accelerate Exodus's growing dominance from a scale and share point
of view. Costs could be lowered based both on scale economies and based on
access to the Global Crossing transport network. It should also further
concentrate scarce web hosting expertise in the combined entity increasing
"economies of skill."
Demand will continue to accelerate for high-end Web-hosting and managed
data services as successive portions of the economy convert to e-business.
While the ranks of companies claiming Web-hosting prowess are legion, we
believe Exodus has achieved singular status and scale with its laser-focus
on co-location and managed services for high-end, mission-critical
Internet operations. Exodus's growing worldwide network of Internet data
centers will increase its competitive advantage this year as international
hosting demand accelerates and Web-focused U.S. companies expand overseas.
The five key investment points for EXDS shares are rapid Web-hosting
industry growth, sector leadership, substantial barriers to entry,
accelerating profitability, and an experience-rich management team.
Rapid Web-hosting industry growth. Expect 77% CAGR in dedicated server
and colocation web-hosting industry revenues. The explosive growth of
e-business is the primary driver for the Web-hosting industry. IDC expects
the Internet economy to grow at a 86% CAGR 1999 to 2003. Large as well as
small enterprises, however, lack the in-house scale and expertise that
Exodus can offer to manage network and data center operations. Exodus
estimates that it can provide nearly a 6:1 cost advantage in operating a
mission-critical.
Sector leadership. Exodus is the category leader. Exodus hosts the
Websites of Yahoo, Excite, priceline.com, and USA.com, and has over three
times the floor space of the next largest competitor. Exodus also hosts
websites for enterprise customers including Merrill Lynch, Nordstrom,
Johnson & Johnson, Sun Microsystems, British Airways, and The Gap. Exodus
is the single name identified with high-end Web hosting. We believe this
brand creates a strong first-mover advantage.
Barriers To Entry. The Exodus Internet Data Center (IDC) model has
scalability and barriers to entry. Exodus has spent nearly $500 million to
build 21 IDCs in 14 cities since 1996, including 10 during 1999, and plans
to build an additional 17 during 2000. This wide geographic distribution
would be difficult to replicate, and is critical in our view, for high-end
customers that require proximity to their data operations.
Accelerating Profitability. Exodus is well down the path to profitability
that new entrants are only embarking on. Exodus reached EBITDA positive in
the first quarter of 2000. Currently 14 of the company's 21 IDCs are
generating positive EBITDA. Expect Exodus to exit 2000 at over a 10%
EBITDA margin in the fourth quarter, around 25% by the end of 2001, and
over 35% long term. Exodus maintains profitability through service quality
and value-added services.
Blue Chip IT Industry Management. Exodus has recently undergone a rich
infusion of blue "chip" blood into management team. Chairwoman and CEO
Ellen Hancock joined Exodus in 1998 following over 30 years of management
experience at IBM, Apple, and National Semiconductor. Recently appointed
president and COO Don Casey was previously president of Wang Laboratories,
and also held executive positions at Lotus, Apple, and IBM. CFO Marshall
Case was previously CFO of data storage company Auspex Systems. Executive
vice president of worldwide sales Sam Mohamad was previously vice
president of Direct Sales and Marketing at Oracle and was president of
Sales and Marketing at Genuity (formerly GTEInternetworking). Executive
vice president for engineering Morris Taradalsky was vice president of the
business systems division at Apple Computer and spent over 18 years in
engineering and management at IBM. CEO Hancock's 2% ownership implies
substantial "skin in the game." Management and directors overall accounted
for 8% of outstanding shares as of June 2000.
Above from 2020 Insight - -thought it would be of interest. donnacat |
