Excite@Home Wants Out of Media Business
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Excite@Home, which has long worked to build up its media presence, Tuesday said it would return its attention to its core broadband business in light of weakness in the market for online advertising and marketing services.
"Our core broadband business is strong," said George Bell, Excite@Home chairman and chief executive officer. "Subscriber growth continues at a rapid rate, our network is performing at record levels of scale and reliability, and we see important new opportunities developing in areas such as content delivery, wholesale services and premium services. However, a weakening advertising environment has adversely affected our narrowband media business. We must focus our financial and human resources on our core business, and make certain that we have the cash resources and the cost structure we need in order to realize the tremendous broadband opportunities before us."
To that end, the company said it will seek the sale or restructuring of those parts of its media operations which don't directly support the company's broadband strategy. The position is a turnabout from the strategy pursued by the company since 1999, when it acquired then-No. 2 portal Excite in a bid to become the next-generation, broadband version of America Online Inc. by offering high-speed access together with a network of branded content.
The company Tuesday issued preliminary first quarter results and revised guidance on its operating results and near-term funding needs prior to its conference call scheduled for April 23. Excite@Home told the Street that the weakness it perceives in the online advertising and marketing services space will mean "significantly lower revenues, greater operating losses and more rapid use of cash than previously forecast for the balance of 2001."
As part of that warning, the company said it anticipates a loss-per-share of between 14 and 15 cents for the quarter. Analysts were expecting a loss of 13 cents per share, according to First Call. The company also said it should end the quarter with cash and short-term investments of about $105 million. It had $201 million as of Dec. 31, 2000. Additionally, Excite@Home said it will likely record an impairment charge associated with its media businesses as part of its first quarter results.
However, the news was not entirely gloomy. The company reported that worldwide subscribers to the @Home service increased by 16 percent during the quarter, from 2.75 million on Dec. 31, 2000 to about 3.2 million as of March 31, 2001. Both those figures exclude subscribers of Cablevision Systems Corp., which in prior periods have been included in @Home's numbers as part of the two companies' contractual relationship. But Excite@Home said its deal with Cablevision did not generate revenue, and it has decided to terminate that relationship. The company is looking to recover more than 20 million performance-based Excite@Home warrants issued to Cablevision during their alliance.
"We've had a difficult relationship with Cablevision almost from the start," Bell said in a conference call Tuesday morning. "The Cablevision subs weren't generating revenue."
Bell did not discount the possibility of legal action to recover the warrants. "I think that we will do whatever we deem necessary to both recover our warrants and close down that relationship in an orderly manner. There is no avenue of pursuit that I would consider to be closed to us."
Meanwhile, the company is taking steps to deal with its weakened financial outlook. It plans to adopt a revised operating plan with lower expenses than previously forecast.
It also is in the process of executing a non-binding Letter of Agreement with primary shareholder AT&T, under which Excite@Home will sell its IRU -- an Indefeasible Right of Use to a portion of an international cable -- back to AT&T for between $75 million to $85 million. The company would then turn around and lease those assets back from AT&T. The money will be used in connection with the restructuring of the backbone fiber agreement between the two companies and with a joint initiative to maintain and improve current network performance levels. In addition, the company is negotiating additional financing from third parties.
In a statement Tuesday morning, the company said, "If the company does not achieve its targeted expense reductions and raise at least $75 million to $80 million by the end of the second quarter, there would be a material adverse impact on the company's operations and liquidity."
However, at the conference call, Bell softened that message. "We clearly don't need all of that cash by the end of the second quarter," he said, noting that the amount reflects what the company needs through the end of the year. "We're targetting Q2 to take us through the door, to give us a level of comfort," Bell said.
In related news, Excite@Home is reportedly close to naming a new president and chief executive officer to replace Bell, who announced in September that he would retire from the CEO position but continue as chairman of the company.
According to the Wall Street Journal, the company is expected -- possibly as early as this week -- to sign Patti S. Hart, a veteran in the telecommunications trenches who has served as CEO of DSL provider Telocity Inc. since 1999. She headed up Sprint's long-distance business from 1994 to 1999.
During Tuesday's conference call, Bell confirmed that the company has spoken with Hart. He said he thought the company was close to naming a new CEO but refused to comment further.