RealTime IT News

Covad: Riding in the Net Fast Lane

Just like many other broadband companies, Covad Communications (COVD) was a Wall Street darling, sporting a stock price as high as $66-5/8. Now, the price is about $30-1/2.

The company is a leading provider of DSL (Digital Subscriber Line), which uses the traditional telecom network to allow for high-speed Net access. Of course, everyone detests dial-up and DSL is a great alternative, especially for those who do not want to spend a bundle on T-1 lines.

True, the DSL market is crowded, but also fast growing. As for Covad, it is methodically building its infrastructure, as well as expanding its product offerings. For example, Covad has struck key agreements with BellSouth and US West. These line-sharing agreements mean a reduction in the cost of service and faster installations. This also means Covad can sign-up more and more customers. So far, Covad services are available in 63 of the top Metropolitan Statistical Areas (this is expected to reach 100 by the end of 2000).

Further, Covad is a full-service provider, catering to both residential customers and small businesses. These services are offered primarily from Internet Service Providers. But with the recent LaserLink.net acquisition, Covad will be able to allow companies to provide branded DSL services to its customers (this is known as a Virtual Internet Service Provider).

Financially, Covad is solid. Revenue grew by 35% sequentially to $41.8 million in the first quarter. Also, cost of goods sold (COGS) were better than expected, yielding 25% gross margins, while estimates were pegged at about 17%. With such growth, it is not surprising that the company is the leading national DSL provider, with over 100,000 DSL lines in service. What's more, the company is liquid, with about $1 billion in the bank account.

The demand for broadband is seemingly insatiable and Covad is taking advantage of this. Agreements with BellSouth and US West add tremendous credibility. Such agreements should help the company land other deals in the future and put the stock back in the fast lane.


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