This is todays report from briefing.com. They initially did some analysis on stocks that were up on Tuesday, when the market was down some 200 points, and about 8 stocks came out as winners out of the entire market. MFNX was one of the stocks, it peaked their curiosity, they did some research, and liked what they found. They posted this this morning. I'm getting in this morning.
From Briefing.com
<<Updated 13-Aug-98
Metromedia Fiber Network
Metromedia Fiber Network (MFNX) first turned up on our radar screen when we were looking for stocks to include in our Brief for yesterday, (written Tuesday night) of stocks which showed no influence from overall market forces. Metromedia turned up because its stock price has continually climbed all through the market turmoil of the past months. Then yesterday, Metromedia Fiber reported extremely strong earnings on much greater than expected revenue growth, and rose an additional 7%, setting a new high at 68 1/4, up 5. After writing a Story Stock about Metromedia's strong earnings report on Wednesday, we decided to do a little more research.
What we found intrigued us. The quick summary is Metromedia Fiber Network looks like a company just about to burst out of its incubation stage and into much stronger growth.
Products
The company's primary product is fiber optic networks. The company will either build you a private network of your own and service and maintain it, or lease you access to their existing fiber network. In the press release issued yesterday, the company listed an unnamed investment bank as a client, plus multi-year agreements with Intermedia, a telecommunications company, and WinStar, a local and long distance provider, as well as an Internet service provider.
For example, if you wanted to become a local telephone company offering telephone service in Manhattan, you could lease space on Metromedia's network for a fixed price and charge whatever you could to individual offices or companies. Metromedia would provide the link to the existing telephone structure at the central switching office level.
Currently in place in Manhattan, Metromedia has plans to build intracity networks in Philadelphia, Baltimore, and Washington, D.C. Chicago and Silicon Valley networks are also planned.
Revenue Growth
Metromedia's revenue growth has been spectacular, particularly in the most recent quarter, as the chart below illustrates.
Metromedia attributes this to the commencement of services as well as acquisition of new customers. We interpret this to mean that for some customers, delivery of product is now just beginning.
The intriguing thing to us though, is the size of the deferred revenue on the books. At $28 million, in contractual obligations, this is revenue that is guaranteed to be coming in. We haven't yet determined the rate at which this money will come in, but here is a short list of multi-year agreements already announced.
Client Company Years Amount (Millions)
Investment Bank 10 $7.8
WinStar 25 $40
Intermedia 15 $36
Racal 25 $25
For a company that is only 5 years old, this is pretty impressive guaranteed revenues. Of course, we have no idea what it costs to deliver the services the Metromedia has committed to deliver, but it is always nice to have predictable revenues.
Metromedia's business model emphasizes fixed costs to the client, with expanding bandwidth as needed. Exactly how this is done, we haven't determined yet, but on the surface, it must clearly appeal to clients. Clients lease space on Metromedia networks, but the networks are not shared with other clients. How Metromedia promises expanded bandwidth without additional charge is an area we need to explore.
Earnings Growth
However, for now earnings growth has been impressive as shown below.
Analysts estimates had been for a loss of -$0.13 per share, so the $0.04 per share surprise is far above expectations. Although neither Zacks nor First Call publish revenue calculations by the individual analysts involved, we suspect the revenues also greatly exceeded analysts estimates.
Analysts Coverage
Metromedia has only four analysts covering it, according to Zacks, with two STRONG BUYS, and TWO BUYS. First Call lists 3 analysts, all with STRONG BUY ratings.
Stock Chart
The first aspect of Metromedia Fiber Networks which attracted us to it was the fact that it is seemingly immune to the recent market turmoil. As shown in the chart below, the stock has had a continuously upward rise while the rest of the market is struggling for direction. There is no guarantee, of course, of this trend continuing, but it is encouraging.
Summary
The Telecommunications Act of 1996 recognized that technology based upon telecommunications would boom over the coming years. Rather than simply hand this growth over to the existing Regional Bells and long distance companies, the Act forced Regional Bells to allow access to their existing infrastructure. Metromedia Fiber Networks is one of the companies that has rushed to this opportunity.
By building their own fiber optic networks, MetroMedia is positioned to provide full broadband services of all kinds, whether telephone, or data, or internet based or video based, or whatever broadband applications are created. Metromedia's business model is to provide the infrastructure to those businesses. Want to start your own @Home style service to businesses in Manhattan? You don't have to go to cable companies or rely on an Internet service provider. You can lease space from Metromedia.
If Metromedia is successful in quickly building a widely dispersed fiber optic network in the Northeast Corridor, they would eventually be a prime takeover company for a larger telecommunications company.
For highly risk tolerant investors, Metromedia Fiber Networks looks like an interesting opportunity.>>
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