With many people going on vacation, it’s been a boring week so far for Net
stocks – that is, except for DSL.net
. Given up for dead, the company surged into the stratosphere on
the heels of a mega deal with IBM. On Tuesday, DSL.net skyrocketed about
107%. Yesterday, the stock soared 40%.
In the past year, the range on the stock has been 2 3/8 – 32 9/16. The
current stock price is 8 47/64 and the market cap is $569 million.
The company recently disclosed its financials and they disappointed the
Street. Revenues in the past quarter were $3.7 million, which was a
sequential increase of 118 percent.
The huge concern was the huge losses. They amounted to $27.3 million. In
fact, Deutsche Banc Alex. Brown, Frost Securities and Stephens Inc.
downgraded the stock.
On the surface, the strategy of DSL.net makes sense. That is, it is a
high-speed provider of DSL services to small and medium-sized businesses. What’s
more, the focus is on second-and-third-tier markets in the US. In
other words, the company is staying away from competitive regions.
True, the company’s markets have much potential, but it is still early —
very early, as the small revenues indicate. Moreover, building the
infrastructure is not cheap. In fact, the company reported that, in the
past quarter, it experienced “unexpected challenges in the timely
installation of service for new customers.”
But the IBM deal will definitely be substantial for DSL.net. Basically,
DSL.net will become the bandwidth provider of the IBM Small Business
But estimating the impact of the deal is no easy feat. Given the fact that
the marketplace is still nascent, there will likely be lag time for the
Rather, I think it makes more sense to focus on established DSL companies,
such as Covad
. In the
past quarter, the company had $58.2 million in revenues, a 39% sequential
Also, it would not be surprising to see a fall-off in the price of DSL.net,
as investors take profits off the table.