All Along The Webtower: Every Reason To Get Excited
Page 1 of 1
@Home's (NASDAQ:ATHM) $6.7 billion offer for Excite (NASDAQ:XCIT) sent XCIT shares soaring 63 percent to $110 and highlights the hidden value of sheer users, page views and traffic.
Our analysis shows @Home paying about $400 per unique monthly user, or about a 63 percent premium to what the average value per unique user is for the top 10 Web sites.
The bid comes in at $134 per page view. To put it in context, however, the offer is about one-third of the value per Yahoo user and 63 percent of the value per Yahoo page view, demonstrating what investors think of market leaders vs. the No.2 or No. 3.
On a revenue multiple basis we think @Home may be paying 45x our estimated 1998 revenue for Excite. XCIT revenue for the nine-months ending September 30 was $100 million, $45 million in third quarter alone.
The deal brings to the fore the one thing money can't buy, or at least buy cheaply--time and the sense that the parade may be passing by. While @Home rides the cable industry's ambitious Internet nirvana dreams, today's real-world Internet grows in leaps and bounds on plain vanilla grandma phone wires.
Speed matters but "effective" speed matters more. What do we mean? How much bandwidth does it take to buy, sell or trade on eBay for 1 user? How fast does the network need to be to search Amazon.com or WebMarket or buy a CD from CDNow (NASDAQ:CDNW)?
HotMail proved to be one of the Web's most killer aps and it can do just fine at 14.4 kbps. It has more than 20 million users. ICQ likewise. Web stock trades via E*TRADE (NASDAQ:EGRP), Ameritrade (NASDAQ:AMTD) and others all exist without the need for fat pipes.Each one is designed efficiently for "effective" speed, just the basics and not glam or unnecessary glitter, no window dressing.
The deal sent XCIT to the top of ISDEX this past week:
|ISDEX ®||19-Jan-99||% change||Point change||% change|
|The Internet Stock Index||close||from||from||from|
|Security First Technologies||SONE||$31.19||-11%||-$3.94||2%|
For despite @Home's first-mover status in superfast cable Internet, it only has 330,000 subscribers in its nearly four years of existence. During that time AOL hasgone from a few hundred thousand subscribers to 15 million betting on plain old twisted pair wires, the turtle vs. the hare approach.
Excite itself was born and grew to be one of the top 10 Web sites in users with 17 million and about 50 million daily page views, acquiring several search engine/guides (Magellan, WebCrawler) along the way and other hidden goodies like Classified2000 and MatchLogic (targeted ads/marketing).
For the thing that matters most, more than wires, cables, grand plans, is sheer bulk of users. If you have users you have a business, any business. There's no telling what business any of the top 25 Web sites may be in in two or three years--it's up to them. Flip the switch and point the users.
@Home couldn't afford to wait for the audience to show up so it had to buy audience in a box, Excite. While the move may be like an FM radio station buying an AM station, or in this case, high-bandwidth going for low-bandwidth, the deal is about buying millions of users and talent, the people manning the boards at Excite making it click, some 1,600 employees and pulling them into the broadband environ that's on tap from cable and telco.
The $30 Billion Baby
@Home's pipes may be fast but now with Excite it has the chance to fill the pipes rather than wait for subscribers to figure out the cable modem business, the PC makers to make a box more consumer friendly and the capital markets to ante up.
Estimates to build out the U.S. cable infrastructure to handle two-way switching for cable Internet runs at $36 billion. To date cable firms have ponied up $6 billion. So @Home couldn't afford to wait for John Malone and the coaxial cowboys to strike up the capital outlay band which may take four years to hit a mainstream note. Bonus here is that AT&T is buying TCI, which owns a big chunk of @Home. Venture outfit Kleiner Perkins also owns part, and it backed both @Home and Excite in the early days.
Looked at another way, Excite becomes part of a dual wired world, cable and telco, with its front end Web site front and center on low and high-bandwidth platforms.
And with AOL acquiring Netscape, this brings to question in our minds how fragile Netscape's Web browsing status may be with @Home. Excite could take over the navigation of the entire @Home experience from headend to Webhead.
Parting thoughts: We wonder why @Home didn't acquire Broadcast.com (NASDAQ:BCST), one of the only audio-video aggregators of note on the Web? And we don't Lycos (NASDAQ:LCOS) may be independent much longer either. Natural-born buyers? Yahoo, Time Warner, CBS.
Harmon's Hotwatch '99 - the 10 stocks to watch in the Internet space - last year's watch group was up more than 300%
for 1999 it's now available as a monthly paid newsletter sent direct to your email box - click here for details -