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Strategies & Market Trends : The Amateur Traders Corner -- Ignore unavailable to you. Want to Upgrade?

To: Tom Hua who wrote (11040)	6/21/2001 3:46:19 PM
From: Zeddie88	Respond to of 19633

Thanks Tom. My goal is to eventually learn options. I am options-illiterate:) Sue

To: Tom Hua who wrote (11040)	6/21/2001 4:03:38 PM
From: Bob	Read Replies (1) \| Respond to of 19633

Tom: I know you are out of EXDS, but just came across this: Exodus (EXDS) 2.25 -0.59: Call it the dot-com death spiral. No one thought it would swallow Exodus, but one mistake that no one should make is to assume that the one-time size or celebrity of any company can protect it from failure. Exodus is not immune from the death spiral, and now appears certain to either fail or be acquired at an even lower price. The key to understanding the Exodus situation is to understand how a death spiral can begin for any company. Once customers begin to doubt the viability of a company, that company's failure can become a self-fulfilling prophecy. How vulnerable a company is to this spiral is directly tied to the cost to potential customers of buying the product and then watching the company fail. For example, if Amazon were about to go belly up and you were considering buying a $5 paperback, the risk in the event of failure is pretty minimal. Furthermore, once you have the book, you don't much care if they fail. For ecommerce companies, the death spiral effect is therefore pretty limited. Now consider Exodus. You are a CIO of a major corporation and need to choose a colocation facility. If you choose Exodus and the company fails inside of a year, the cost to you of interrupting operations to move all your gear a second time is huge. When you have safe options like AT&T, Sprint, Worldcom, and Qwest, why roll the dice on Exodus? The death spiral effect on colocation companies is powerful. On its conference call Wednesday night, Exodus noted that some potential customers were not choosing Exodus due to concerns about the company's viability. Forget all the financials and all the forecasts for growth in colocation and managed hosting over the coming five years. The news that customers are now avoiding Exodus due to concerns about viability was all you needed to hear. That's the beginning of the death spiral. Without new financing, which is highly unlikely, Exodus stands little chance of surviving independently now. And those hoping for a take-out at a premium should take a look at the capacity use in these colos. It's not clear why anyone would pay a premium for the debt servicing and overhead costs associated with half-empty colo facilities. Exodus is in the death spiral. Before you try picking bottoms on any other dot-coms, consider just how sensitive customers are to viability concerns so that you know how vulnerable the company is to being sucked into the spiral. - Greg Jones, Briefing.com