[email protected] Tracks A New Strategy

When it was announced in January, the acquisition of No. 2 Internet portal Excite by cable access player @Home Network was touted as a bold move that would create an instant giant in the broadband content market.

But there was always something forced about the union, and its seeming arbitrariness undermined any chance of real synergy between the two companies, a problem reflected in the clumsy, hyphenated name of the resultant entity – [email protected]

On Monday the company finally acknowledged as much, announcing it would set up a tracking stock for Excite and other media assets. The goal of the move is to quell rumors that [email protected] (ATHM) is looking to sell the Excite.com portal and to make clearer to uneasy investors the company’s strategy.

Shares of ATHM were trading at 55 13/16 on Monday afternoon, up nearly 9 percent from Friday’s close. But that price is 3 percent below the 57 11/16 closing price on Jan. 19, the day the deal was announced. For most of the summer, ATHM languished even further south, spending most of August and September below $40 per share.

One reason for the stock’s slump were rumors that AT&T – the content-challenged telco (remember AT&T Interactive?) which owns 26% of [email protected] – was trying to find a buyer for the Web portal. None apparently was forthcoming, so AT&T, which controls 58% of the voting power for [email protected], did the next best thing by spinning out a tracking stock and creating a separate board of directors for the content side of the business.

The other reason is that since the merger was finalized in May, [email protected] has only met analysts expectations in two earnings reports. Compare that to rival America Online (AOL), which routinely beats street forecasts and signs up four times as many subscribers in each quarter, and you can see why the market isn’t yet overwhelmed by the [email protected] opportunity.

Creating the tracking stock may not change that – nor does it preclude an eventual sale of the content side of [email protected] — but at least it will provide more clarity to investors.

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