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Technology Stocks : IDT *(idtc) following this new issue?* -- Ignore unavailable to you. Want to Upgrade?

To: Art Baeckel who wrote (24334)	8/27/2001 10:33:43 AM
From: Art Baeckel	Read Replies (1) \| Respond to of 30916

Excite’s numbers tell a tale Excite @Home’s (ATHM) warning earlier this week that it might not be able to survive as a going concern after having raised $185 million just two months ago was a blow to the viability of broadband Internet and streaming content. In an amendment to its annual report filed with the Securities and Exchange Commission, the Redwood City, Calif.-based company said that “conditions raise substantial doubt about our ability to continue as a going concern. We cannot guarantee that we will be able to obtain additional funding on acceptable terms, if at all.” With this negative admission as a backdrop, Excite is also facing delisting as its share price has plummeted to under $1 per share – light years from its 52-week high of $18.56. But what makes this slide even worse is the fact that if Excite’s shares are delisted, the company will be forced to repay some of its outstanding notes in cash. This impending collapse of Excite is especially bitter news for AT&T (T), which controls the voting stock of the company that analysts once considered the frontrunner in rolling out high-speed Internet. After all, it was only in June when Excite assured Wall Street that the raising of $100 million through the sale of convertible notes to Promethean Asset Management and Angelo Gordon & Co. plus the $85 million it snagged from AT&T in a fiber-optic capacity contract would suffice to keep it in good operating order. But it didn’t. No mystery What happened? This is a question that no one seems able or willing to answer. But it’s obvious that Excite is far from profitability after aggressively marketing and selling broadband connections throughout the country to the tune of establishing more than 3.6 million residential customers and more than 12,000 businesses. While AT&T and Excite have not elaborated on the causes, the consensus on the Street is that the culprit is the crash of Internet advertising. At first glance, the company’s latest 10Q for the quarter ending June 30 does show a catastrophic dip in advertising revenues. For example, last quarter they fell to a measly $28.5 million, compared to about $75 million for the same quarter last year—a 62 percent drop. Conversely, Excite showed an even greater 72 percent increase in consumer access revenue, which was $89.6 million, compared to $52 million one year ago. However, when one contrasts the cost of services and products for this quarter, which was $98.4 million, compared to $69.3 million same time a year ago – a 41 percent increase – one begins to see another reason why Excite is in deep trouble. Couple this with the fact Excite’s financials also show it cut its spending on sales and marketing by 40 percent to $44.6 million, compared to $74 million the same time last year, and the mist begins to dissipate. The numbers show that at a time when Excite’s advertising revenue was falling into the abyss, Excite was slashing its sales and marketing, while spending substantially more for its products and services. Since the costs are not broken down further in its filing, I’m going to speculate that Excite has been absorbing the costs for the hardware and installation of its broadband in a desperate attempt to boost its subscription base by offering lucrative packages to lure potential subscribers. Moreover, if one looks carefully at Excite’s costs of service and products for the last six months one can definitely make such an argument, considering such costs increased by 50 percent to $191 million, compared with $126.6 million for the same period last year. A hard sell Also consider the fact that Excite’s general and administration costs for the last six months escalated by 26 percent to $35.8 million, compared to $28.5 million for the same period last year. This indicates to me that the company had more service calls and more customer paperwork, which tends to support my theory that Excite pushed very hard to increase its subscribers – no matter what the cost. So what’s the bottomline? In my opinion, Excite’s numbers tell a tale that very few are willing to listen to: Broadband is a very hard sale once you get past the early adopters and pitch it to Joe & Jill lunchbox. That’s because even at its best, the current broadband quality and content can’t measure up to free TV, which offers Jerry Springer without having to download. Perhaps that explains why heavyweight AOL Time Warner (AOL) recently got involved in a joint venture with five Hollywood studios in order to begin offering feature films via its broadband service by the first quarter of 2002. However, once again there a real question of whether consumers will pay for such a video-on-demand service, which is estimated to take from 20 minutes to 40 minutes to download per movie viewed on your computer screen. In addition, I wonder how excited Jerry Springer fans will be about having only about 100 such titles to choose from in the beginning? Will it make them willing to pay the additional subscription fee and $3.99 a pop per video to upgrade their dial-up connections and forsake their chatrooms for the thrill of watching movies on their small screens? Meanwhile, AT&T finds itself in a very precarious situation. Since it’s already bet the farm on the future success of this medium, it simply cannot allow Excite to fall off the face of the Earth. Yes, Virginia, there is a Santa Claus and his name is C. Michael Armstrong, CEO of AT&T. I predict he will soon be delivering an early Xmas gift for Excite that will bail it out of its current mess. However, I also suspect Armstrong – just like the real Santa—will be delivering some huge lumps of coal for all those bad boys and girls who are currently running Excite into the ground. This courtesy of Raging Bull! ART