Hi Lizzie,
Check this out RE: EXDS and tell me what you think. I picked it up off the INAP thread.
The following was issued by Wit SoundView, a company affiliated with Wit Capital Corporation.
Marlowe Burke
Kristen Campbell
Initiating Coverage InterNAP Network Services August 29, 2000
Intelligent Routing, Intelligent Arbitrage; Initiating Coverage with a Strong Buy
(FYE December) FY99A FY00E FY01E 3Q00E 2Q00A 3Q99A Ticker: INAP
Revenue ($M) 12.5 67.7 204.1 19.5 13.6 3.6 Price: $26.38
EPS (Reported) (0.47) (1.09) (1.88) (0.36) (0.16) (0.15) 52-Wk. Range: $19.50-$111.00
EPS (ex. Charges) (0.39) (0.70) (1.26) (0.20) (0.13) (0.12) Shrs. Out. (M): 145.3
Old Estimates NA NA NA NA NA NA Rating: Strong Buy
We are initiating coverage of INAP with a Strong Buy rating. Rising demand for Internet content delivery
services provides a large market opportunity for INAP’s patented intelligent routing solution. INAP
appears to be moving to leapfrog the Exodus distribution channel and is selling directly to next-generation
hosting providers such as LoudCloud and content delivery service providers such as Adero,
which serve customers out of Exodus and other data center facilities. We view these as major emerging
distribution channels and believe they provide a strong answer to concerns over lack of access to Exodus
concerns. We believe weakness in shares since the CO Space acquisition has been overdone: we value the
assets acquired at a significant premium to the price paid and expect the facilities to accelerate
deployment of customers.
INVESTMENT HIGHLIGHTS
· Intelligent Routing. InterNAP enhances the speed and reliability of Internet content delivery services through:
1) aggregated
network capacity and routing addresses from multiple network operators, enabling high-quality traffic termination to 95% of IP
addresses, and 2) a patented routing solution which determines optimal traffic routes between given points and avoids the
interconnection points where packet loss typically occurs.
· Intelligent Arbitrage. INAP uses its volume purchasing power to negotiate up to 30-50% discounts on bandwidth from its
11 providers. Then, adding value through its premium routing, INAP prices at a premium to standard bandwidth pricing.
Additionally, INAP has devised an intelligent arbitrage on inefficiencies in leasing terms for outsourced network capacity. By
aggregating demand and balancing data traffic initiated on either point of a given network route, INAP is able to more fully load
each channel and resell each unit of capacity twice to generate higher gross margins. Finally, where traffic can be routed directly
through 2 of its P-NAP interconnection points, INAP generates incremental revenue at virtually zero marginal cost.
· Leapfrogging the Exodus connection. INAP has signed 5 of the top 7 content delivery service providers on as customers and
is making strong in-roads with next generation service providers such as LoudCloud. Apart from the testimony these customers
provide as to the quality and uniqueness of INAP solutions, these companies will also support sales to hosting customers
housed in Exodus and other data centers. This enables the company to bypass the powerful Exodus distribution channel and
should allay investors concerns about competition of INAP services with those provided directly by Exodus.
· Demand Rising. We believe demand for intelligent routing solutions is rising as the Internet supports more mission-critical
business operations and congestion translates into fewer page views, uncompleted e-commerce transactions and higher transit
costs. Estimates for the company’s addressable market opportunity approach $45bn in FY03.
· Early Mover Advantage. INAP’s proprietary solution has virtually no direct competitors at this time. INAP has a patent not
only on its own software but on the design of symmetric routing over aggregated network capacity. InterNAP’s engineering
team is headed by one of the original authors of the Border Gateway Protocol (BGP) for Internet interconnections, and its
proprietary solution is designed to add intelligence to the BGP. Additionally, INAP’s build-out of infrastructure enhances its |
