Somewhere between 1996 and 1998, PSINet (NASDAQ:PSIX) managed to outlast its critics, hire a slew of MCI wizards, place $600 million in debt, acquire fiber optic lines that would make AT&T drool, and position itself as a backbone that owns its backbone, unlike the spineless ISPs whose stocks have run up to all-time highs this year.
But Wall Street may not have clearly caught up with the grappling moves PSI has made and what it all means. We ran some numbers and came up with a story that could see PSINet, already up more than 100% year to date in stock price, become one of the largest data carrier players in a world where data traffic is (or soon will be) king.
First our analysis:
PSINet’s latest quarterly revenue annualized implies $178 million yearly revenue. On an enterprise to revenue basis we project PSIX at 7x revenue, an average for ISPs but perhaps an undervalued multiple for a carrier class ISP/IP communications backbone.
PSINet can do what reseller ISPs can’t, and that’s sell more bandwidth. It’s theirs–they don’t rent it like the others. All this with fiber and bandwidth that is fat enough to send the entire Internet traffic through and have room to toss a few 747s in there also.
Check the table, the numbers tell the story:
Market | (millions) | $ |
Current | (millions) | $ |
Current | (millions) | $ |
Working | (millions) | $ |
Long-term | (millions) | $ |
Enterprise | (millions) | $ 1,257.30 |
Latest | (millions) | $ |
Annualized | (millions) | $ 178.00 |
Users/Customers | ||
Corporate | (millions) | 0.033 |
ISP | 61 | |
End | (millions) | 0.252 |
POPs | 400 | |
Enterprise value ratios | ||
Enterprise/revenue | 7.06 | |
Enterprise/corporate accounts | $ | |
Enterprise/ISP | (millions) | $ |
Enterprise/end | $ | |
Enterprise/POPs | (millions) | $ |
Employees | 900 | |
Revenue/employee | $ | |
| ) 1998 Mecklermedia, The Internet Media Company | ||
Here’s our summary:
When asked what was the best thing PSI did in the past two years Postal replied: “Become a global facilities-based IP communications provider without giving up the company” and “we’ve done a good job of funding growth.” PSI’s plan for the $600 million bond placement are: $20 million to the underwriter of the deal; $20 million to complete the iSTAR acquisition (acquiring iSTAR makes PSI the leading ISP in Canada); $140 million set aside for 2 1/2 years of interest payment, general corporate expenses.
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