I thought the following interview in Barron's would be of interest. The only problem I have with this guy's understanding of ELNK is the fact that he does not realize ELNK is now the third largest ISP and no longer has the second place. MSN has beaten ELNK!
David Diamond in barrons 4/29/2001
Q: Have you bought Amazon.com?
A: I don't own Amazon. But we are the second-largest shareholder, behind Sprint, in a company called EarthLink.
Q: You are? When did you pick that up?
A: Within the last three to six months at mid-single digits. We cut back a little when it popped in the 12s but have been buying again around 10.70 a share. When it dropped to mid-single digits, it was trading at $2.50 above cash when we bought it. They're the second-largest Internet-service provider, with 4.8 million subscribers, and I view that business similarly to cable. Ultimately, to get to the consumer you want to control the pipes or the content for delivery. The stock has gone from around 20-plus a share, down to as low as 5-7 in the last couple of years as a lot of players in the ISP space went bankrupt or merged. So the game is changing and making the business a better business. Subscriber growth rates have slowed to the high single-digits from the mid double-digits. It is a business that should be a good business over time. I paid virtually nothing for the business, because I bought it at a small premium over cash value. It should be EBITDA positive by the end of this year. The other thing to consider is the private-market valuation on the business. Look at either the multiple that was paid in the Time Warner-AOL transaction or, more recently, look at what Microsoft has been spending to get in this business by building its MSN network. Up until recently, it was offering $400 rebates for customers to use their service. They decided that wasn't the most effective way for them to grow that business and they are losing money on it. EarthLink was trading at $115-$120 per subscriber at the time we bought it. Put $400 per subscriber on it, plus the cash, and you can get between 15 and 20 bucks a share. Also, it has a strategic franchise that a lot of companies would love to own. |
