Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..] -- Ignore unavailable to you. Want to Upgrade?

To: SteveG who wrote (704)	9/29/1999 12:58:00 PM
From: SteveG	Read Replies (1) \| Respond to of 1860

Bauer/Lee Fahnestock: WinStar Communications, Inc. "Guidance- not fundamentals, is the problem -– credibility's back in the dog house" Investment Opinion: We are reiterating our BUY rating on WinStar. Our year-end target price of $65 reflects a 30% public market discount to our revised 1999 net asset value of $91 per share and offers a 50% upside potential for patient investors willing to wait out the current period of lower visibility. Key points: · Yesterday WCII shares declined by nearly 12 points (21%) as investors reacted to news that 2000 revenues would be lower (in some cases by as much as 20%) than analysts' estimates. According to management, street estimates for revenues for year 2000 ranged from $600 million on the low side to nearly $800 million on the high side with most estimates (including ours) clustered in the mid $700-million range. How this was allowed to happen we don't know, but ‘official” guidance now calls for revenues to approximate $650 million in year 2000. This represents a 50% advance over our revised $435 million revenue estimate for 1999 (we were at $450 million). We think it's a bit extreme to call into question the company's overall fundamental health. · Fundamentals are intact. Incremental access line additions are still expected to increase by at least 5,000 per quarter for the next six quarters resulting in a 32% line growth for year 2000. Revenues per line however will likely remain flat in the $60 per month range (versus prior expectations that called for revenues per line to expand from the $60 level reported in 2Q99 to $70 by year-end 2000). Herein lies the shortfall: We talked to the company numerous times yesterday and last night. Although we still have some loose ends to clean up, it appears that the increased sale of data services (which produce lower revenues per line) plus the aggressive pricing of voice services will serve to cap revenues per line at the current levels. Gross margins which advanced modestly during the first half of this year (from 23% to 24%) are still expected to expand to the 35% level (possibly better) by 4Q as the company's traffic is transitioned on to its own long haul and local wireless network. Data services also carry higher margins than voice services so an increase in the company's data revenue mix (as a percentage of total revenues) will also boost the its gross margins. Longer term, gross margins are still expected to reach the 50%+ level by the end of next year – so on balance, with the exception of lower revenue per line expectations, the fundamental picture is intact. · We are lowering our 1999 year-end net asset value estimate from $96 to $91 to reflect the impact of lower revenue per line yields in the near- and mid-term. This revision in conjunction with the stock's dramatic price drop yesterday puts WCII's public market discount at 54%. Although this is cheap based on valuation, we doubt the stock will bounce back meaningfully until the new business model is digested and better understood. The bottom line here is that business appears to be on track with data services taking more of a staring roll in the company's revenue mix. This, in and of itself, is not a bad thing. The problem seems to have been in the communication of this transition to the street. Thus we don't view the revisions we've made to our model as reflective of a shortfall but as a shift in business strategy