eMailbag From Readers: AT&T-TCI, Egghead, @Home, USWeb
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First reader up this week writes: "Steve, what is your opinion on whether or not ATT will get their way with bundled Internet access with TCI...or do you think it will be regulated? What are the two likely scenarios for ISPs like Mindspring, AOL, Earthlink, etc., if ATT gets its way, or if they don't. I would imagine if the FCC regulates, ISPs such as Mindspring will see rapid rise in stock; HOWEVER, my main concern is what if ATT "wins?"
Reply: I think the war is over the wire first and that the FCC should not try and regulate the future without knowing what that future looks like. One of the reasons the world's largest telco AT&T (NYSE:T) wants to acquire the world's largest cable operator TCI (NASDAQ:TCOMA) centers on providing data.
Data is data, whether that's voice, e-mail, audio, video -- it doesn't matter. The bias is that voice is somehow more valuable than other data types, wrongly so.
Early 20th century communications law has no place in 21st century communications. You cannot have a horse and buggy regulation on the automobile.
Otherwise, we're all back to the interactive TV debacle and proprietary systems looking to monopolize what the Internet will become. Let the marketplace decide the winners, not those that control the copper wire, the least valuable aspect of the value chain.
Eggsactly Now What?
"Steve, what do you see in Egghead.com? What could I expect from EGGS in the near future?"
Reply: Check out the report on Egghead.com (NASDAQ:EGGS) here.
An update: for the quarter ending September 26, EGGS reported $35 million revenue, up 73% from 2Q97 and loss of $7.2 million. Six months revenue reached $64 million, up 67% and loss of $12.7 million. Losses are to be expected in our perspective since Egghead.com seems more like a startup than a oldtimer given its Web-only relaunch. EGGS trades at 1.7x annualized revenues, which looks fairly tame compared to its growth rate.
It has deals with AOL, Netscape, Microsoft, ZDNet, CNET's Shopper.com and ebay.com to sell software/hardware via their outlets. Cash position as of latest quarter, $59.5 million. Said another way, subtracting the cash, EGGS enterprise value sits at about $160 million or 1.4x annualized revenues. We would like to see Egghead get more aggressive, however, in its outlets.
"Wow-what's the news on USWeb? Up 2 5/8 yesterday to close at 17 for an 18% gain. I can't seem to find any news to support the surge."
Reply: CEO and founder Joe Firmage passed the baton to former Oracle VP Robert Shaw. Firmage will become "chief strategist." Also, USWeb and CKS (NASDAQ:CKSG) in a pending merger, will be redubbed 'Reinvent Communications' where Shaw will be CEO and CKS chair Mark Kvamme will be chairman. Wall Street apparently expects some growth here with a few new faces at the top. Unusual? No. Yahoo's founders, Earthlink's founder and others have all handed the management to experienced managers.
"First, your @Home analysis - come on! Internet channels like a cable model - please!! There are a bunch of reasons to purchase @Home and becoming a content provider/controller of Web content is not one of them. The Web will never be channel-ized! I felt that you would be the last person to fall into the well know trap of trying to equate the new Internet model to former communication channels.
Reply: @Home (NASDAQ:ATHM) is on my top 10 stocks to watch list for 1998 so I'm a fan of what it's doing. My concern centers on the ability of the cable industry to come to grips with being data carriers and not monopoly programming providers.
That's like asking some of them to undergo frontal lobotomies and pay for it. Cable providers see programming or content much different than ISPs. Cable providers don't know what "access" means, they know what "subscribers" mean.
They see Internet access as a "premium" cable channel offering, not as an all-you-can eat free for all of content and services.
"When do you expect the top 10 watch for 1999 and will it be available to general public. If so where (Web address exactly I should be looking for?) The calls for 1998 were outstanding - no words to describe."
Reply: Thank you. We're putting up 1999's top 10 to watch list as
close to December 31 as possible, same as last year.