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Strategies & Market Trends : Fatty's Donut Shop -- Ignore unavailable to you. Want to Upgrade?

To: Matt Brown who wrote (3676)	9/25/1999 5:17:00 PM
From: Mr. Park	Read Replies (1) \| Respond to of 5041

09:51am EDT 24-Sep-99 Scott and Stringfellow (Thomas C. Morabito 804-782-200) GEEK - Revising 2000 Estimates and Initiating 2001 Estimates September 24, 1999 Internet America - GEEK - $12 3/4(www.airmail.net) GEEK - Revising 2000 Estimates and Initiating 2001 Estimates 52 Week Price Range: $61 - $11 Market Cap.: $88 MM Current Yield: N/A Shares Outstanding: 6.9 MM Est. 3 Year Revenue Growth: 45% 50-Day Average Volume: 110,000 12-18 Month Target: $28 Debt / Capital: $0.3 MM /2% Current Opinion: Strong Buy (1) Previous Opinion: Strong Buy (1) EPS (FYE: June) 1999 A 2000 E 2001 EQ1 - September $(0.05) $(0.26) Q2 - December (0.16) (0.34)Q3 - March (0.10) (0.38) Q4 - June (0.13) (0.33)Year $(0.45) $(1.33) $(0.85) Revenues (MM) $18 $35 $47 TEV/Revenues 3.9x 2.0x 1.5x EBITDA/Share $(0.18) $0.17 $0.53 We are revising our 2000 estimates for Internet America, and initiating 2001 estimates. Our projections now incorporate effects of the PDQ.net acquisition, as well as the KDI Internet Solutions and INTX-NET acquisitions that were made earlier this year. The recently announced merger between EarthLink and MindSpring emphasizes the importance of size in the ISP sector, and Internet America continues to grow via acquisition. We are maintaining our Strong Buy (1) rating on Internet America, and believe that shares of the Company are attractively priced at current levels.Key Points _ We are revising our 2000 estimates for Internet America and initiating 2001 estimates. Due to the factors outlined below, we are reducing our estimates for the Company. On the top line, we are raising our 2000 revenue figure from $32.2 million to $34.7 million, while at the same time raising our connectivity & operations expense from $15.9 million to $17.3 million, thus reducing gross margin from $20.7 million to $17.4 million. However, we are now projecting SG&A to decrease almost 20% from $19.4 million to only $15.6 million, thereby improving EBITDA to $1.7 million from $1.3 million, or $0.15 per share to $0.17 per share. The real impact, however, comes on the bottom line. We are increasing our D&A estimate from $3.0 million to $13.7 million, which lowers our EPS estimate from $(0.06) per share to $(1.33) per share. For 2001, we are initially projecting revenue of $46.8 million, EBITDA of $5.6 million ($0.53 per share), and a net loss of $(0.85) per share. _ The acquisitions made by the Company this year are having some significant effects on our model. As a result of PDQ.net's pricing structure, which includes $9.95 and $13.95 per month pricing plans, revenue per acquired subscriber is actually lower than that of Internet America's existing subscriber base. Because the PDQ.net acquisition is also much larger in size than any previous purchase, the Company is now having to recognize a significantly greater amount of amortization related to the acquired subscriber base, roughly $30 million amortized over three years. Similarly lower revenue per subscriber is being realized by the Company related to the KDI Internet Solutions and INTX-NET acquisitions that were announced on August 2 and July 28, respectively. Furthermore, in virtually all post-acquisition scenarios, subscriber churn invariably increases during the next quarter or two, which further impacts revenue. _ The proposed EarthLink and MindSpring merger reinforces the fact that in the ISP sector, size does matter. Yesterday, EarthLink and MindSpring announced a merger agreement that would create an ISP powerhouse that, virtually overnight, could be a real contender with their archrival and industry behemoth, America Online. We believe that Internet America's strategy of growing subscribers organically and acquiring other ISPs that make strategic sense will preserve the Company's status as one of the top regional ISPs, as well as enhance shareholder value. We believe that Internet America will continue to make acquisitions in the future, though they will likely be on a smaller scale than PDQ.net. Essentially, the EarthLink-MindSpring combination is concrete proof as to the importance of critical mass in the industry, and we support Internet America's campaign of growing larger via prudent acquisitions. _ We are maintaining our Strong Buy (1) rating and believe that Internet America shares are attractively priced. We believe that Internet America will remain competitive in the industry. As a result of the recent acquisitions, the Company should grow its subscriber base reported last quarter by 45% to 145,000 subscribers, which will expand its presence throughout Texas and in the important metropolitan Houston market. Based on the Company's positive future prospects, we are maintaining our Strong Buy (1) recommendation and $28 target price on Internet America, and believe that the Company's shares, down some 45% over the past two months, are attractively priced for aggressive investors. Company Description Based in Dallas, Texas, Internet America is an Internet Service Provider (ISP) with over 145,000 customers located in the southwestern United States. The Company offers traditional dial-up services, dedicated access, web hosting and other services for its residential and business customers. Internet America employs a user density business model in targeting specific regions in the Southwest. This approach allows the Company to effectively market its services (1-800-Be-A-Geek) and to pursue its Virtual Point of Presence (VPOP) network deployment strategy. Internet America currently offers local dial-up access in over half of the 254 counties in Texas.

To: Matt Brown who wrote (3676)	9/25/1999 5:19:00 PM
From: Mr. Park	Read Replies (1) \| Respond to of 5041

03:09pm EDT 22-Sep-99 Insider Research Wire (REBECCA ERSKINE 800-243-2324) GEEK INSIDER WATCH....SELLING - GEEKInternet America (GEEK) Data Processing Shares of GEEK are trading roughly at their December '98 IPO prices, and insiders have begun to sell shares rather aggressively. Between August 3 and August 18, four insiders sold 83,810 shares at prices ranging between $13.77 and $14.25. (When the sales were made, the stock was already down more than 25% from the market prices when the six-month restriction period was over). Some insider trades are more significant than others. This situation fits our early criteria of significance and is being published as a "heads up" at this time. Subsequent insider activity may cause this to evolve into a story to be eventually disseminated through any of our various information and media pipelines.