Barron's article/interview with Alger, and his comments on ATHM
interactive.wsj.com
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March 29, 1999
Still Raging
Today's Fifty are Niftier, zero inflation is near, and look for Dow
20,000
An Interview With David Alger -- Investors are clamoring for David
Alger's monthly fax to clients, which contains the growth investor's
market predictions. Little wonder. Year after year, his forecasts have
been right. Alger, 55, is the author of Raging Bull and chief executive of
Fred Alger Management in Manhattan, which has spawned some of the
mutual-fund industry's best-known investors. Alger's funds, which own
the market's fastest-growing sectors, have also beaten their peers,
recently and over the long haul. Last week, as jitters sank the Dow, Alger
told us why he thinks inflation is going to zero, and why the Dow is
heading still higher. He also plugged a clutch of Internet plays and new
Nifty Fifty stocks. Whether or not you agree, we guarantee that you'll find
his insights useful.
*******************(excerpt on ATHM)*****************
Q: You're also a fan of @Home, which is moving up after the deal
between Comcast and MediaOne.
A: It's a great deal. We still own a very large position in Comcast. We
think the cable companies are the Internet providers of the future. The
fact that suddenly Comcast will have this access to homes is just
massively exciting.
Q: What's the case for @Home?
A: It's a truly interesting company with a unique place in this business.
The problem with the Internet, as any user will tell you, is lack of
bandwidth. It is too slow to retrieve. You can't get good, full-motion
video. A guy sitting at home is frequently frustrated by the access time.
This problem needs to be solved. One solution is to put the Internet over
cable television, which is a much bigger band width, rather than
through the phone line. @Home is the leading company to do that. It
has deals with just about every cable company -- TCI, Cox, Comcast,
Cablevision. The only ones it's now lacking are Warner Communications
and MediaOne, which of course is being taken over by Comcast. At the
end of 1998, @Home had 300,000 subscribers hooked up to this system.
It's rising sharply. They just announced the acquisition of Excite, a
leading portal company. It's a content provider. This lets @Home offer
not only the ability to hook up cable TV and get much faster Internet
service, but also provide its own proprietary portal.
Q: How much is it growing? What's the stock worth?
A: Right now, @Home sells for about 138, having risen fairly sharply in
the last couple of days. I would be perfectly comfortable seeing the
stock at 200 in the next couple of years. I think it will have a million
subscribers at yearend. Their market cap is $17 billion, which is a very
high valuation per subscriber. However, by the end of 2002, we expect
them to have over eight million subscribers. Assuming @Home is at 200,
it would have a market cap of about $35 billion, or $4,375 per
subscriber. That's comparable to many cable TV companies. Another
way to look at it is that, in 2002, we expect the combined @Home/Excite
to generate revenues of $2.2 billion, and earnings per share of around
$3. A valuation of 70 times earnings would put the stock at $210. Please
note that the company will still be growing at an extremely high rate at
this point.
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