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Excite@Home's Exquisitely Bad Timing

The point has been driven home for several weeks: Internet investors, rattled by market turbulence and plunging stock prices, now demand actual profits from public Net companies, or at least tangible evidence of strong progress toward profitability.

Excite@Home (ATHM) must not have gotten the message, for the high-speed cable access company on Wednesday announced it will change its short-term focus toward growth, rather than earnings.

As The Church Lady used to say, "How convenient!" For this latest in a string of strategy shifts comes as the company posted a first-quarter loss and failed to meet analysts' expectations, making it seem an awful lot like spin control, especially given that Excite@Home turned in its first profit ever in the previous quarter.

The market reacted predictably, as ATHM fell nearly 10 percent to $18 per share by late Thursday morning. ATHM is now down 68 percent from its recent high closing price of $57, set last Nov. 22. Since reaching their all-time high closing price of $91 almost exactly one year ago, ATHM shares have lost 80 percent of their value.

Excite@Home reported a net loss of $676.5 million, or $1.75 per share, for the quarter, compared to a loss of $18.1 million, or 8 cents per share, in the year-ago quarter. Excluding amortization of goodwill, distribution agreements and other intangible assets, the company lost $4.6 million, or 1 cent per share, versus a year-ago loss (excluding one-time items) of $6 million, or 2 cents per share.

Consensus estimates called for a break-even quarter, though just several weeks ago the street had been expecting a 1 cent per share profit.

Worse, the company said it expects operating losses of between 25 cents and 30 cents per share for the entire fiscal year, due to increased spending on broadband service marketing and international expansion. Wall Street had forecast an annual profit of 10 cents per share.

You can argue that Excite@Home has no choice but to aggressively pursue new domestic broadband subscribers and international markets, for sequential quarterly revenue growth is slowing. The $138 million in Q1 revenue may represent a 75 percent increase over revenues in the year-ago quarter, but it's only 7 percent more than the $128.8 million in Q4 '99. If you're inclined to blame that modest increase on seasonal differences, ATHM saw revenue rise 30 percent from Q4 '98 to Q1 '99.

Meanwhile, the company tripled spending in Q1 over the year-ago quarter to add 350,000 new subscribers, giving it a total of 1.5 million. How much will it have to spend to meet CEO George Bell's stated goal of having 3 million high-speed access customers by year's end, 6 million in 2001 and 10 million in 2002? And how much will the losses mount up before shareholders see a return on their investment?

If you think Excite@Home will be a winner in the broadband 'Net access market, then now is a great time to buy in, for shares are trading at an all-time low.

I'm just not convinced the company will ever turn the corner.


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