AboveNet connects with Web, investors
By Jeffry Bartash, CBS
MarketWatch
Last Update: 12:12 PM ET Mar 19,
1999
Internet Daily
Net Headlines
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WASHINGTON (CBS.MW) -- AboveNet
Communications soared again Friday, and no wonder:
It's the Internet service provider for increasingly busy
Internet service providers.
Well, not exactly, but you get the
idea. AboveNet (ABOV) basically
helps ISPs connect more efficiently
to each other and to companies that
provide content over the Web. Its
goal is to minimize information loss,
speed up data exchanges and relieve
web congestion, and reduce the cost
of access to the so-called Internet
backbone.
AboveNet is enjoying such
prosperity these days -- at least in
the minds of investors -- because its one of the few
companies to offer such services. It's also is moving
quickly to capture the business of companies in Europe
and Asia as web-site development catches on, a
particularly lucrative opportunity in light of how small
those markets are now.
While the 3-year-old company only tallied $3.4 million
in revenue in 1998, analyst Bill Garrahan of Lehman
Brothers estimates it will record sales of $21 million in
1999, $60 million in 2000, and $137 million in 2001.
Earlier Friday, Garrahan initiated coverage with an
"outperform" rating. That helped boost shares of the
company, which went public in December, by 14.5
percent. It jumped 7 9/16 to 59 3/4, about six times
above its all-time low of 11 1/2. Its closest competitor,
Exodus Communications (EXDS), soared 14 7/8 to 141.
While analysts acknowledge that AboveNet, like most
money-losing Internet-related concerns, is exorbitantly
valued, Garrahan points out that its trades at a
reasonable 6.5 times 2001 projected revenue.
"It's clearly in a great space," he said.
"Revenue is going to grow in
proportion to the Internet."
Central command
AboveNet, founded by former Ace
Computer salesman Sherman Tuan in
February 1996, is carving out a nice
niche for itself. The company earns
most of its money two ways.
First, it rents space in several
communications- control centers,
called Internet Service Exchanges,
where ISPs and web-content providers
can put their own equipment. It then
provides high bandwidth and allows
customers to exchange data directly,
quickly, securely and with fewer
errors.
For example, Real Networks (RNWK)
uses AboveNet to speed up download
time of its RealPlayer device, which PC users utilize to
see and hear multimedia files.
Already, the San Jose, Calif.-based company has signed
up nearly 70 U.S. Internet service providers to locate
their equipment ins its exchanges. More than 200 others
have direct connections to AboveNet's sites. "We are
directly linked into all the major ISPs," said
spokeswoman Rose Marr.
In addition, AboveNet acquired access to a transatlantic
high-speed cable and opened a site in London to allow
European ISPs to connect more easily and cheaply to the
U.S, which accounts for about 90 percent of all Web
traffic. Major Asian ISPs, meanwhile, own their own
undersea cable to the West Coast, and hook in to
AboveNet's exchange in California.
Though the company has a unique business model, it's
not the only one providing the kind of services it does.
Aside from Exodus, other rivals include AT&T (T),
MCI WorldCom's (WCOM) Uunet unit, Frontier
Communications' (FRO) GlobalCenter subsidiary and
Verio (VRIO).
"You're going to see other, larger competitors like
Qwest also getting into this area," said John Hodulik of
PaineWebber, who covers internet-backbone
companies.
Still, he and other industry observers believe there is
enough money to go around. "There's room for a lot of
players in this," concurred Garrahan, likening the young
but fast-growing sector to the long-distance phone
business.
Another advantage AboveNet possesses is that it does
not compete with ISPs for end users -- small business
customers, for example, who want high-speed access.
As a result, ISPs may be more likely to sign up with
AboveNet instead of an AT&T, which could try to steal
its customers.
Perhaps the biggest concern among financial analysts
right now is whether the company can handle the kind of
hyper growth Wall Street expects it to achieve. For
now, though, those worries are small.
Sums up Hodulik: "AboveNet is an up-and-comer in the
Web co-location business. It's an interesting stock that's
going to grow as the Internet does." |
