From the L.A. Times Business section today. Jeff
latimes.com
Excite@Home Looks Dysfunctional; Drilling Schlumberger
Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.
By JAMES PELTZ, MICHAEL HILTZIK
Excite@Home (ATHM)
Jim: This outfit was originally known as @Home, until it bought Internet portal site Excite not long ago. And now, Mike, Excite
@Home is somewhat of an interesting animal out there in the Internet world.
Mike: Yes, it's a camel. And thanks for that straight line. This is the quintessential company designed by a committee.
Jim: Yikes! And I was going to be charitable and just call it a hybrid.
Mike: First, though, let me make full disclosure. I'm an @Home subscriber, which means I get my Internet service at home from @Home, which provides high-speed broadband Internet connections via my cable television system.
Jim: So when you want to go on the Internet you don't dial up a phone number, it just comes on to your computer.
Mike: Exactly. And it's on permanently, as my cable hookup is permanently on my TV. If I want to go Web surfing I don't have to wait. The pages appear on screen at lightning speed--and let me just tell you, I love my @Home. There are communities that have had problems with @Home because of slowdowns and brownouts, but I haven't experienced that (yet).
Jim: And what do you pay a month?
Mike: Forty bucks, so it ain't cheap. But to me it's finally turned the Internet into an indispensable service. Movie times? I click on the screen. Traffic conditions, the latest news, you name it. It's a dramatic improvement.
Jim: Fine, but what about the stock?
Mike: Uh, well, that's a different story. Maybe the best way to deal with this is for me to give a quick rundown of this company's history.
Jim: Good idea.
Mike: @Home was created by a bunch of venture capitalists in Silicon Valley, who hired some technology experts to figure out a way to pipe high-speed Internet access through the TV coaxial cables going into people's homes. Then they lined up a couple of dozen cable companies that owned those cables, and put the two groups together.
Jim: In fact, one way of looking at the company is that it's in partnership with those cable companies.
Mike: Actually, it is majority-owned by these cable companies, the chief among which is AT&T. Now, eventually one of the other ventures that these venture guys were involved with was having trouble. That was Excite, which was lagging behind Yahoo and some other portals. So they engineered the Excite-@Home merger. So now we have this camel, and that's the problem with this company.
Jim: How so?
Mike: The techie guys believe very strongly that providing high-speed data service to homes is not a business with a future of high profit. High-speed connections are going to become a commodity--that is, they'll eventually get very cheap. There'll be a lot of competition from telephone companies and satellite companies and who knows what.
Jim: They've got a point. Everybody and their brother is talking about offering that service.
Mike: So instead, the techies believe the formula for growth is to provide content--information, entertainment, etc.
Jim: Which is what Excite was trying to do, too.
Mike: Of course, the problem with the content guys is that they have no idea what's going to make money on the Web. Their notion is to try every damn thing. They're going to throw every peanut-butter-and-jelly sandwich at the wall and see what sticks, or at least what leaves a stain.
Jim: For example?
Mike: Excite@Home's last brilliant idea was to go out and agree to buy a company called Blue Mountain Arts.
Jim: For a price that still makes my jaw drop.
Mike: Of course, it paid with Excite@Home stock, the real value of which is anybody's guess. Blue Mountain Arts is not only a company that made no money, it was a company that had no revenue, because it was all about letting people send electronic greeting cards to one another for free.
Jim: And Excite@Home paid only about $788 million for it.
Mike: Yeah. Cheap at half the price. My point is that there doesn't seem to be a basic business plan on the content side.
Jim: Small wonder that the stock is down about 40% since it peaked in early April, to the high-$40s. Now, we should note that the company plans to create a "tracking stock" that will reflect its content business. But what that will be worth, and how it will impact Excite@Home's price, is also anyone's guess.
Mike: And don't forget: The @Home service itself depends on contracts with the member cable operators, which start expiring in 2002.
Jim: And there's no guarantee that Comcast or Cablevision or what have you is going to decide that they can't provide this service to customers just as well as they can through @Home. Not only that, but AT&T just announced a tentative deal with Mindspring, an Internet service provider, that could give Mindspring customers access to AT&T's cable lines--possibly cutting @Home out of the loop. But would you consider this stock on the basis that it's gotten pounded in the last few months?
Mike: I have real concerns about the long-term course of this stock. Now I'll say again--because Tom Jermoluk, the chief executive, might be listening--that the service is fabulous. I'm glad I have it.
Jim: But not the stock.
Mike: Excite obviously is counting on its new tracking stock becoming the focus of the usual Internet mania. But I'm sorry, I never bought that mania before and I don't buy it now, though I may go down with this ship.
Jim: I'm with you. Excite
@Home's Internet service will grow--it has just reached 1 million subscribers this year. But it has to share those subscriber revenues with their cable partners, and so it doesn't even get to keep all of that growth. |
