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

To: 8-Ball who wrote (1383)	2/19/1998 7:13:00 AM
From: Roger Bass	Read Replies (1) \| Respond to of 29970

Here's a framework for thinking about the value of ATHM, and some thoughts on digital TV and other revenue streams. > If ATHM will provide all digital service for TCI, Comcast and COX > then the money will start flowing in. Once you experience the > digital TV experience analog cable reminds you of a roof-top antenna! I would query this. TV programming is the cable cos' bread and butter. They are not going to accept their revenues dropping here, unless under severe competitive duress which seems unlikely in the medium term. Besides, for standard digital TV, it's one-way, and they don't need ATHM. So if ATHM is to make money out of this, either consumers have to be prepared to pay more for the service (or for additional services), AND the ATHM infrastructure has to have some unique value in delivering those services. I'm not saying that this is impossible, just that the arrival of digital TV is not something which is automatically going to make money for ATHM. I personally think that telephony is a much more likely business for ATHM to be able to get some share of, because it's not cannibalising any existing cable co revenue stream. A few calculations and scenarios on the value of ATHM. These are not to say 'this is what it's worth', but rather 'this is what you might believe that would correspond to the current price', and to think, well do I believe it will be better than that, and when. ATHM gets 1/3 of the basic monthly fee, say $10 in round numbers. Say they have a 10% margin on this going forward. That's $12 per year. Assume that they put together other services for individuals (enhanced TV, phone services etc) that generate $20 per mo for ATHM on average, and that those earn a 30% margin. That's $80 per year. At Work (just starting) had something like 300 customers vs 50,000 individual (0.6%) generating $1200 per mo. Say this goes to $600 per mo (with more, and smaller businesses), with a 30% margin. That's $2,160 per year per business. Now say businesses go up to 2% of the total individual customers. That then equates to $43 per year per individual customer. Or at 5%, it would be $108 per year. This is then $135 per year total operating margin per individual customer, or $200 in the '5% business' scenario. Applying tax at 25% and then discounting this at 10% (and you could argue forever about that number), which gives a 0.75 x10 'value' per individual customer, or $1,012 (@ 2%) and $1,333 (@ 5%). I reckon there are 118.5 M shares in issue (diluted), so at $29 share price that's $3.4bn. Roughly speaking then, the current share price already discounts for 3.4 M customers (in the 2% scenario), or 2.5 M customers (in the 5% scenario) Projections that have been discussed so far are for a quarter-on-quarter doubling, which would get us to 800,000 by end 1998. Of course IF they kept that up, that same rate would get to 12.8M by end 1999. Looking at the market, you might say this is doable, though operationally it's a vast challenge. Now, you can think of lots of scenarios to tweak this assumptions one way or the other, but this puts some order of magnitude on how much growth the market is expecting already based on the current price. The most likely thing I can see happening to bring big revenue numbers forward is for the Teleport deal to deliver much larger numbers of business customers to the network much faster. The numbers above only assume some tens of thousands or 100,000 business customers, and it's not a vast stretch to see that exploding rather faster. So, make of that what you will. TA (if you believe it) could be better at seeing where the price will go tomorrow. It's clearly at fairly stratospheric levels already. The key issue in keeping it up there, and going up some more, will be whether ATHM proves able to deliver operationally on these exponential growth rates.