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Technology Stocks : AUTOHOME, Inc -- Ignore unavailable to you. Want to Upgrade?

To: Frank A. Coluccio who wrote (18080)	12/20/1999 3:36:00 PM
From: deeno	Read Replies (1) \| Respond to of 29970

Analysis of Conference call with ML. Price: $47 7/8 Estimates (Dec) 1998A 1999E 2000E EPS: d$0.18 d$0.04 $0.16 P/E: NM NM 313.7x EPS Change (YoY): NM NM Consensus EPS: d$0.04 $0.15 (First Call: 09-Dec-1999) Q4 EPS (Dec): d$0.03 $0.00 Cash Flow/Share: NA NA NA Price/Cash Flow: NM NM NM Dividend Rate: Nil Nil Nil Dividend Yield: Nil Nil Nil Opinion & Financial Data Investment Opinion: D-2-1-9 Mkt. Value / Shares Outstanding (mn): $20,682 / 432 Book Value/Share (Sep-1999): $16.69 Price/Book Ratio: 2.9x LT Liability % of Capital: 4.3% Stock Data 52-Week Range: $99-$32 ó Symbol / Exchange: ATHM / OTC Options: AMEX Institutional Ownership-Spectrum: 17.6% Brokers Covering (First Call): 18 ML Industry Weightings & Ratings Strategy; Weighting Rel. to Mkt.: Income: Underweight (07-Mar-1995) Growth: Overweight (07-Mar-1995) Income & Growth: Overweight (07-Mar-1995) Capital Appreciation: In Line (28-Jan-1999) Market Analysis; Technical Rating: Average (25-Oct-1999) The views expressed are those of the macro department and do not necessarily coincide with those of the Fundamental analyst. For full investment opinion definitions, see footnotes. Investment Highlights: ú We hosted a conference call with Excite@Home?s president George Bell and Chief Technology Officer Milo Medin. ú George Bell reminded investors that the expiration of cable exclusivity will be a staggered phenomenon beginning mid-2002, at which time Excite@Home expects to have 8 million paying broadband subscribers. At the end of 2002, over 50% of the 72 million total homes currently committed will remain under exclusivity. ú Post exclusivity, @Home expects that it will act in many cases as a third-party network / transport provider for its cable partners (who will still own @Home and thus be inclined to use its platform) and third-party ISPs. @Home is beginning to discuss with its cable partners what a rate card for these wholesale transport services might look like. ú We agree that there is substantial value in the Excite@Home assets (although not necessarily higher than the current market value), that @Home will be one of the leading providers of broadband access, and that @Home will wholesale its network to many of its cable partners post exclusivity. ú We continue to believe that install requirements for both cable and DSL are substantial challenges, and that broadband access will not be a winner-take- all-market for any one player. Excite@Home ? 20 December 1999 2 We hosted a conference call with Excite@Home?s president George Bell and Chief Technology Officer Milo Medin. The following summarizes the key points made by the company on that call. George Bell made several points regarding @Home?s exclusive contracts with its cable partners. All of @Home?s cable partners intend to honor their exclusive contracts. Those expirations are staggered, and the first of them do not come due until the second half of 2002. At the end of 2002, over 50% of the 72mm total homes currently committed will remain under exclusivity. In addition, the nature of Excite@Home?s exclusive contracts are such that the company can bundle its distribution services with other content and / or its content services with alternative distribution mechanisms outside its cable partners? footprint today. Post exclusivity, Excite@Home will be free to pursue alliances on both the distribution and content sides just as its cable partners will be. Finally, the Excite@Home service today is not exclusive by way of content. That is, users can change the Excite@Home start page if they wish. George went on to address some of the value investors should consider when thinking about Excite@Home. Excite@Home expects to have 8mm paying broadband subscribers by the middle of 2002, when exclusivity begins to fall off, and a ?pretty good hunk? of the media revenues associated with those subscribers. In addition, Excite is launching an open internet version of Excite broadband, which users can receive at work, and which could today be bundled with technologies like DSL outside the cable partners? footprint. 18%, or 13mm, of Excite@Home?s 72mm committed homes are outside the U.S. Excite@Home has 7-year exclusive terms governing these international subscribers, which therefore have a higher present value than the domestic subscribers. The company also expects that, as the leading broadband media company, its expertise will be a significant competitive advantage in an ?open access? world. What do post-exclusivity economics look like for @Home? @Home expects that it will act in many cases as a third-party network / transport provider for its cable partners and third-party ISPs. @Home is beginning to discuss with its cable partners what a rate card for these wholesale transport services (essentially the right to use @Home?s regional data centers, caching technology and backbone) might look like. In a post-exclusivity world, the cable partners will still own a substantial portion of the access business (the establishment of the @Media tracker will keep them from being diluted by acquisitions on the media side). As a result, they will have a strong economic incentive to use the @Home platform. The Regulatory Climate. The company believes that the AT&T / Mindspring letter agreement will help dispel any regulatory challenges to Excite@Home?s current arrangements with its cable partners. It also suggested that regulatory challenges had been overblown by the Portland case: only 8 out of 1,500 municipalities voting on franchise transfers have tried to make ?open access? a condition. Who owns @Home?s 8mm subscribers when exclusivity comes up and how does the service retain them? The company believes that reasonably satisfied customers are less likely to leave the service. Excite@Home also would expect to arrange with its cable partners some sort of limited-time ?no poaching? deal. How does the network scale and how should investors value the network? CTO Milo Medin believes the @Home network is uniquely architected to compete in a post exclusivity environment. No fundamental changes to the network architecture are required. He also pointed out that retrofitting broadband for delivery over a narrowband network is very difficult, and that @Home was built to deliver broadband. Milo added that AOL did its first DSL deal last January, with Bell Atlantic, and has yet to announce any subs. As an example of its capacity, with only 1mm users, @Home is pushing 2mm gigabits of data per second between its network and the public internet. (This does not include the data coming from local caching, which is about half of what users receive.) That is already faster than the rate most narrowband networks, with many times more customers that @Home, can move data. By the end of 2000, @Home estimates that it will be moving 13 million gigabits per second. In terms of value, Milo pointed out that everything past the headend is owned by @Home ? the switches, routers, servers (hundreds of them), the software to turn the cable modems on and off, etc. Cable versus DSL. DSL?s install time, according to Excite@Home, stands at 4 hours versus 1.5 hours for @Home. Milo also pointed out that his contacts at the telephone companies say the much-ballyhooed DSL technology G.lite is ?not what it has been cracked up to be?. How has the delay in the launch of in-PC modems affected @Home rollout. The keys to building the subscriber business are 1) cable operators? upgrading their systems and 2) reducing or eliminating the cable operators? install time. The company pointed out that a truck roll is not dependent upon whether a modem is external or internal to the PC. A cable company employee comes to the house to add a jack, because most PCs are not in the same room as the television. The company is pursuing several in-home wireless and HPNA technologies that deliver data from a modem in the television set top box to the PC in the den, which would eliminate the need for a truck roll.