Either Mindspring Is Too Cheap, or Earthlink Is Too
Expensive
Do they deserve those big spreads in their valuations?
Herb Greenberg
An item here the other day mentioned that noted New York investor George
Soros holds a big stake of Earthlink Network. Within two days, the
Pasadena-based Internet service provider's stock jumped more than 40 percent
(probably the result of investors who never read the prospectus). It has since
retreated, but still commands a $276 million market value.
Meanwhile, Atlanta-based Mind spring Enterprises, which is in the identical
business -- with a nearly identical business strategy and almost identical
revenues -- is worth only $64 million.
More high-tech info at New Media News
Earthlink trades at five-times sales; Mindspring one-times.
Why the spread? Let's just say it never hurts to have a famous investor on
board, and the Soros connection clearly helps Earthlink.
But according to Steve Harmon, senior investment analyst for I.WORLD.com
-- an Internet news service -- one isn't any less risky than the other.
While both get high marks from this column's readers for customer service,
they essentially do little more than resell their service over the lines of other
service providers. ``The advantage is they don't have to build up a network,''
Harmon says. ``The downside: What intrinsic value do they have?''
And the economics of Internet service providers still hasn't been proven to be a
winner. It's not known how loyal Internet users will be to providers. The
industry already is troubled by a high rate of ``churn,'' as customers switch
services before the original provider can recoup the sales and marketing costs
associated with acquiring them.
And if well-heeled rivals like AT&T ever start providing anything in the way
of customer service, Harmon believes Earthlink, Mindspring and others could
be in jeopardy.
In the meantime, Harmon expects most service providers to be lousy short-
term investments. ``If they can pull a hat trick long term,'' he adds, ``the more
power to them.''
From SF Chronical, By: Herb Green (www.sfgate.com) |
