OK, let me make some suggestions. All the numbers I'll give here include the assets acquired in the Netcom acquisition.
Point One. The per customer valuation that the article in question uses assumes that all customers are equal. In order to make an apples to apples comparison, one must consider that in its subscriber count MSPG includes 18k Web hosting customers with average revenue of $58/month/customer. In addition MSPG has 3k dedicated access customers at $520/month/customer.
Assuming (big assumption) that the profit margins on all of these revenue streams is the same, each dedicated access customer brings in about the same revenue as 24.75 dialup customers ($520/$21 = 24.75; $21 = avg. dialup revenue/month/customer). So those dedicated access customers could be said to be equivalent to 3000 x 24.75 = 74,250 dialup customers. The same math applied to Web hosting customers is 58/21 = 2.76; 2.76 x 18,000 = roughly 49,700 dialup customers. We don't have exact subscriber figures for MSPG right now so I don't feel that there's any point to going further with this except to point out that not all subs are created equal. ELNK has Web hosting customers too, but a quick perusal of their recent 10Q doesn't give me any numbers. I didn't get the idea that they have any dedicated access customers.
Point Two. FWIW, MSPG has won a number of awards (http://www.mindspring.net/aboutms/awards/) from major magazines, on ELNK's Web site I could only find one major organization giving them the nod.
Point Three that I hope someone else can explain to me. I heard once, but did not understand, that because MSPG has purchased so many companies that they have absorbed a significant amount of goodwill which they can use to their advantage on their balance sheet. I have never understood the concept of goodwill clearly enough to say whether or not this postulation makes sense. ELNK has piles of tax loss carryforwards at its disposal which is one advantage of losing money.
Point Four. Per figures released by MSPG in their post-earnings CC in October 98, just 20% of MSPG's customers are on 3rd party POPs. (I don't know how the Netcom acquisition may have changed this.) In any case, a simple per-subscriber valuation doesn't reflect the relative strengths & sizes of either company's network. Once again, I could find no information on this topic during a quick perusal of ELNK's recent 10Q. Can anyone provide this information?
Point Five. ELNK's alliance with Sprint may limit its options in the broadband arena. Sprint, for instance, may prevent ELNK from cutting an ADSL deal with Bell Atlantic as AOL recently did. OTOH the alliance with Sprint may assist ELNK's entry into ADSL access.
Point Six. MSPG is making a profit.
Point Seven, against MSPG. I think Sprint has said that it eventually plans to acquire the remainder of ELNK that it doesn't already own. While this doesn't mean anything good or bad about the company, it should do good things for the stock price.
Having said all this, I think ELNK is a promising company with a good future. I don't mean to knock it. When I bought MSPG a year ago I evaluated them against ELNK and preferred MSPG. That's the last time I did any research on ELNK.
Comments welcome.
Peace,
Mr Bones |
