All Along The Webtower: Every Reason To Get Excited

@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.


Competing In Internet Years


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

www.isdex.com

 

 

12-Jan-99

12-Jan-99

31-Dec-98

 

 

 

 

 

 

ISDEX

 

357.00

-3.2%

-11.97

24.5%

NASDAQ

 

2,408.17

3.8%

87.42

9.8%

DJIA

 

9,355.22

-1.3%

-119.46

1.9%

 

 

 

 

 

 

Excite

XCIT

$110.00

46%

$34.88

162%

Verisign

VRSN

$88.63

31%

$21.13

50%

CNET

CNET

$99.75

31%

$23.50

94%

Exodus

EXDS

$94.50

26%

$19.50

47%

Broadvision

BVSN

$38.00

25%

$7.50

19%

PSINet

PSIX

$34.25

18%

$5.13

64%

@Home Network

ATHM

$115.38

15%

$15.38

55%

RealNetworks

RNWK

$63.25

12%

$6.56

76%

Sportsline USA

SPLN

$33.25

11%

$3.38

114%

CheckPoint Software

CHKPF

$55.50

11%

$5.63

21%

Network Solutions

NSOL

$209.88

11%

$20.88

60%

Open Text

OTEXF

$29.94

10%

$2.69

23%

Cisco

CSCO

$106.38

8%

$8.25

15%

Lycos

LCOS

$112.94

8%

$8.44

103%

Axent

AXNT

$37.94

7%

$2.56

24%

VocalTec

VOCLF

$14.81

7%

$0.94

32%

Mindspring

MSPG

$101.50

6%

$5.38

66%

ISS Group

ISSX

$65.00

5%

$3.00

18%

USWeb

USWB

$30.69

4%

$1.19

16%

Security Dynamics

SDTI

$28.88

2%

$0.44

26%

Concentric

CNCX

$38.13

1%

$0.25

15%

Open Market

OMKT

$14.75

0%

$0.06

26%

Netscape

NSCP

$64.50

0%

$0.00

6%

Preview Travel

PTVL

$25.75

-1%

-$0.19

40%

America Online

AOL

$150.50

-2%

-$3.13

-3%

N2K

NTKI

$16.31

-3%

-$0.44

25%

CDnow

CDNW

$21.81

-3%

-$0.69

21%

Network Associates

NETA

$52.88

-3%

-$1.72

-20%

Earthlink Network

ELNK

$79.00

-3%

-$2.75

39%

Inktomi

INKT

$158.00

-4%

-$6.63

22%

GeoCities

GCTY

$75.00

-4%

-$3.38

123%

eBay

EBAY

$229.88

-4%

-$10.63

-5%

Spyglass

SPYG

$18.13

-5%

-$0.88

-18%

Broadcom

BRCM

$130.00

-6%

-$8.00

8%

Onsale

ONSL

$50.25

-8%

-$4.63

25%

Infoseek

SEEK

$77.06

-8%

-$7.13

56%

Egghead.com

EGGS

$22.38

-9%

-$2.31

8%

CyberCash

CYCH

$20.38

-10%

-$2.25

36%

E*TRADE

EGRP

$90.19

-11%

-$10.75

93%

Security First Technologies

SONE

$31.19

-11%

-$3.94

2%

24/7 Media

TFSM

$35.75

-12%

-$5.00

28%

Doubleclick

DCLK

$87.94

-13%

-$13.00

98%

Verio

VRIO

$26.00

-13%

-$3.94

16%

Amazon.Com

AMZN

$139.81

-14%

-$23.56

31%

Cyberian Outpost

COOL

$32.50

-17%

-$6.44

18%

Yahoo!

YHOO

$323.00

-20%

-$79.00

36%

CMG Info

CMGI

$105.00

-20%

-$25.75

97%

Beyond.com

BYND

$29.25

-21%

-$7.75

41%

IDT Corp

IDTC

$12.06

-22%

-$3.31

-22%

Broadcast.com

BCST

$137.38

-38%

-$85.63

80%


Beyond Speed


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%


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