EXDS
(warning: long post)
I seem to remember you did the Hunt report on Exodus. I wonder if you could comment on the announcement to purchase Global Crossing's web hosting unit. That gives Exodus 32 IDCs around the globe and raises their customer base to 3,800.
OK: I've done some reviewing of notes, etc. Prior posts of interest on EXDS can be found here (but remember that SI's old post numbers may be off by 1 or 2):
Exodus Overview
Post # 12458
Message 12230572
Exodus Revenues history, and projected…1997-2000
Post # 12768
Message 12281266
Exodus CC, 1/27/00
Post # 16632
Message 12701259
Important posts on TMF thread:
Exodus Summary, by Exdstasy
TMF #1601
boards.fool.com
Web Hosting has been hot, growing with the demands of the internet, as corporations outsource their data traffic to "server farms". Exodus is the undisputed market leader, and has been running at a full sprint to keep ahead of the competition (lots of princes). Exds leverages its co-location services by providing value added services, including managed services and application services. By doing all of this, it increases its number of customers, and the number of services it sells to each customer. Therefore, revenue per customer has been going up steadily, and the number of customers it serves, has been going up steadily.
In reviewing my notes, there are a couple of things that stand out:
1. Each qtr, Exodus adds another 500-600 customers. This seems to have continued since I last reported on EXDS on this thread in April.
2. Revenues per customer, 2nd qtr, 1999, were at about $150,000 estimated. By 2nd qtr, 2000, they stood at $259,000 per customer. Value added services are attractive to customers, and they are buying. Moreover, EXDS raised prices 10% earlier this year. By July, the CEO stated that they have sustained this price increase successfully and it will continue. Likewise, by July, the CEO stated that the "churn rate", ie loss of customers to competitors, was going down, from historically 2% to 1.4%. I had noted in the past that this royalty model executed by EXDS might be stickier than we think, and the above figures would support this contention.
3. Entering 2000, they originally stated they wanted to nearly double their count of internet data centers to 32. They subsequently revised that upwards to 34, then to 36. Adding Global Centers, from Global Crossing, will add an additional 10 centers. BTW, these centers are becoming profitable faster than anticipated. Originally projected times to EBITDA positive were about 12-18 months; EXDS is seeing centers turn positive within 6 months. EXDS, overall, turned EBITDA positive earlier this year, and is expected to turn a profit by First Quarter, 2001.
In April, I made some other comments:
"Overall, EXDS continues to win over large numbers of new customers, without losing hardly any. They are the King in this space, they are the first mover, and clearly they are increasing revenues per customer by adding value added services, including cacheing (Inktomi), rapid content distribution (Mirror Image), web hosting metrics, and especially security (Network Solutions; security and firewalls). Many have speculated that the Web Hosting model as executed by EXDS, is stickier than it may seem at first glance, because of the integration of all these services.
On the downside, revenue growth is slowing, which may be expected as the company grows. But I find this troubling because the competition, ie Global Crossing, Intel, etc. hasn’t even gotten off the ground yet."
Well, since then, Global Crossing chose to exit the Web Hosting business, and Intel has had some success, but has < 10 internet data centers, and has not made much impact. I guess the main competition is WorldCom, which subsumed Digx. EXDS, thru the deal with Global Crossing, insures or commits itself to making extensive use of Global Crossings pipes for data transmission, without having to "buy" or "install" the pipes, and carrying the capital expenditure related thereto.
What's the bottom line?
1. EXDS is the cream of the crop in this capital intensive field, which is a pick & shovel play on internet growth and internet infrastructure.
2. Buying out Global Centers eliminates what had been their main competitor, and allows EXDS to grow faster still. I would guess that EXDS will by year end have at least twice, and possibly 3X as many internet data centers as WorldCom/Digx. And EXDS has sufficiently proven that it can raise prices on customers, yet lose fewer customers, while continuing to add customers. And it can increase revenues/customer.
Unresolved Issues/Concerns:
1. I don't actually know how many internet data centers WorldCom has, or how efficiently it increases revenues/customer, etc. So I don't have a handle on the competition. Maybe someone on this thread who own WCOM can chime in here on this issue. I also don't know their stated plans or goals in Web Hosting. I do know that WCOM is many things, with many divisions, and is focused accordingly on many targets. I know EXDS is focused on 1 target, specializing entirely in Web Hosting.
2. I don't know how many customers there are out there. Predictions are that internet growth, web hosting growth, and e-commerce will grow exponentially over the next 4-7 years. I think EXDS is positioning itself nicely here. I also don't know how capital intensive their IDC's will be to maintain years from now, or the costs of that maintenance. I do know that EXDS had been experiencing > 40% qtr to qtr growth, but then reported in 1st qtr, 2000, sequential growth of 32%. I bailed, and put that money into NTAP in the spring. In 2nd qtr, 2000, EXDS reported sequential growth of 34%, up from its predicted growth of 25% on which it had given guidance.
Overall, EXDS is a royalty play. It is the Dell of its field, which is clearly in a tornado. I've said many times that I like management. Nothing's changed. Web Hosting is stickier than we have expected it to be; but there is certainly no open proprietary architecture here; no hidden or unique applications software or enabling hardware.
I think it is a good investment for the long term, as long as one watches management carefully, and follows the conference calls each quarter, taking careful notes.
My problem, in being of limited means, is this: where should I put my money? I think Storage is a better place, and both EMC and NTAP, in my view, are better Kings (or gorillas) in their space. Likewise, I have my eye on CREE and WIND. Both offer the potential to be Gorilla candidates, and the CAPs that go with the pongid breed.
Bruce, I hope these comments are helpful. I'd like to hear your views on things, or from anyone else.
best,
Apollo |
