Sub-stantial Difference? Mindspring & EarthLink Value Gaps
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So what's a dial-up Internet subscriber worth? To Mindspring (NASDAQ:MSPG) about $612 a piece. To Wall Street about $2,000 to $4,500 depending on how you look at it. For the same subscriber.
Here's how: The national ISP has agreed to acquire ICG's 400,000 NETCOM subscribers for $245 million ($215M cash, $30M stock). Yet investors value Mindspring subs at $4,500.
Obviously there's some of the deal already discounted into MSPG but even at $2,000 it looks like a great gap MSPG realized, paying about 20 to 25 percent of 'retail.' Our chart shows the difference between these ISP powerhouses:
|Market cap||(millions)||$ 1,954||$ 2,498||78%|
|9 mos. To Sept 98||(millions)||$ 118||$ 75||157%|
|Annualized||(millions)||$ 157||$ 100||157%|
|Value per account||$ 1,954||$ 4,542||43%|
|Mindspring with NETCOM||$ 2,498||78%|
Some of that may be attributed to Mindspring's new girth with the accounts, and surpassing the 1 million magic milestone in all likelihood if the deal closes.
Mindspring's story, however, draws out rival EarthLink's (NASDAQ:ELNK) position clearer to show its colors also. EarthLink, in bed with Sprint for equity and to feed it new subs, is already at the 1 million mark -- and its annualized revenue is 57 percent higher.
Even when we toss in MSPG's revenue boost from NETCOM, slating total annualized revenues at $200 million, Mindspring appears to trade a little frothier than EarthLink. Our abacus shows that if we assume Mindspring at 1 million subs, at Jan. 14 market cap that's $2,500 per subscriber.
On the other side of the equation, EarthLink's 1 million subs were valued at $2,000 a piece.
Since the deal was announced Jan. 6, MSPG shares have dialed up 75 percent higher to $115.75 per share, as investors discount ahead some of the boon for the buck, before slipping to close January 14 at $81.3125 per share.
With NETCOM, Mindspring instantly catches up to rival EarthLink (NASDAQ:ELNK) in the 1 million subscriber milestone. But the value gap highlights either one of two things to us - MSPG may be ahead of itself or ELNK may be behind the valuation curve, relatively speaking. Knowing the EarthLink team's commitment, we would lean towards the latter.