P6 in Forbes dial-up article
Thursday September 21, 12:53 pm Eastern Time
Forbes.com
Stock Focus: Dial-Up Internet Service Providers
By Robert J. Sherwood
According to a Federal Communications Commission study, 1.8 million U.S. homes were using
broadband Internet access at the end of 1999--via cable modems, digital subscriber lines (DSL)
or other means.
With the number of broadband customers growing at a rapid rate, traditional dial-up Internet
service providers (ISPs) are struggling to find ways to either compete, engage in joint ventures
or gain access to existing broadband pipelines. Meanwhile, the battle over open access to data
over cable has yet to be resolved in the courts..
David Levy, a technology analyst at Chase H&Q in San Francisco, thinks it's going to be a few years before any of the traditional
ISPs are turning net profits. One big exception: America Online (NYSE: AOL - news)--which will have the potential to reach 13
million homes with Road Runner, Time Warner Cable's high-speed cable access joint venture with MediaOne (NYSE: UMX -
news), Microsoft (Nasdaq: MSFT - news) and Compaq Computer (NYSE: CPQ - news) if the merger with Time Warner (NYSE:
TWX - news) goes through.
EarthLink (Nasdaq: ELNK - news) is just one of the old-fashioned ISPs feeling the heat; its shares are trading at $10, off 75%
from a year ago. EarthLink has begun offering high-speed DSL to some of its 3.7 million narrowband subscribers through an
alliance with Charter Communications (Nasdaq: CHTR - news). To date, the company has more than 100,000 broadband
customers. Costs to the company associated with this upgrade and its $262 million acquisition of ISP OneMain.com are expected
to keep EarthLink unprofitable until 2002.
For this year IBES International expects EarthLink to lose $1.63 per share on estimated revenue of $1 billion, and lose another 76
cents in 2001 on sales of $1.5 billion. The table below lists five of the country's most popular dial-up ISPs. All except America
Online trade for less than ten times sales and are off at least 75% from their 52-week highs.
Profits are not a problem at AOL. Nonsubscription revenue in AOL's latest fiscal year amounted to $2.5 billion, or one-third of
total sales.. Earnings per share are expected to grow 48% next year to 59 cents. Even though AOL is trading 43% below its
52-week high, it still has a very rich 2001 estimated P/E ratio of 95.
Like EarthLink, Juno Online Services (Nasdaq: JWEB - news) has introduced broadband services in limited areas. The company
burns through an average of $8 million per month in free cash (earnings plus depreciation, amortization and deferred taxes, minus
necessary capital expenditures). The company has $85 million in cash and equivalents, a cushion that should last at least ten
months if it is not replenished. Although revenue has doubled over the latest 12 months, the company has yet to show it can turn
revenue into earnings. Nor are profits on the horizon, according to IBES consensus forecasts on Juno, which run through fiscal
2002.
NetZero (Nasdaq: NZRO - news), the world's largest provider of free dial-up service, has yet to venture into digital access. In less
than a year NetZero's shares dropped 92%. Wall Street analysts expect the firm's losses to diminish--to $1.04 per share next year
and 72 cents in 2002.
With more than 5 million registered users and a price of just $4 per share, could NetZero be a takeover target? NetZero sells for a
hefty nine times fiscal 2000 sales (June 2000), but analysts reporting to IBES International expect sales to rise 191% next year,
giving NetZero a more affordable estimated price-to-sales ratio of 3.
Dial-Up Internet Service Providers (P6 is one of them. See url)
biz.yahoo.com
Wash Post article w/P6:
washingtonpost.com |
