Fourth Quarter Provides Nothing to Write Excite@Home About

Updated from 5:48 p.m. EST:

Earnings Scorecard
Actual	Estimated*	Year-Ago
($0.09)	($0.10)	--
*By First Call/Thomson Financial

Excite@Home (ATHM Quote) issued a disappointing fourth-quarter earnings report Thursday, featuring a 10% revenue shortfall, a first-quarter slowdown forecast and a staggering $4.6 billion acquisition-related writedown.

The company, which provides high-speed Internet access and operates the Excite portal, reported a fourth-quarter operating loss of $36 million, or 9 cents a share. That's narrower than the 10-cent loss expected by analysts surveyed by First Call/Thomson Financial. Those figures exclude nonoperating costs and other items, including normal amortization and the writedown.

Revisionists

The company also forecast that in the first quarter of 2001, which it expects to be its weakest, revenue will drop 12% to 15% sequentially from the fourth quarter of 2000, driven by a 30% to 35% drop in media and advertising revenue. Excite shares plunged in after-hours trading.

Revenue for the quarter came in at $169.1 million. Analysts had been expecting revenue in the neighborhood of $190 million. Sequentially, the company reported lower revenue from its commercial services and international operations. The company's consumer access segment was its fastest-growing business, with revenue rising 17.8% from the third quarter to $66.9 million in the quarter ended Dec. 31.

In its call, the company also revised various 2001 forecasts downward. Instead of the 6 million residential subscribers that the company has said it hopes to have by year's end, Excite@Home says it now expects to end the year with 5.2 million to 5.5 million subscribers. That reduction is due in part to the company's decision not to plan for any residential deployment this year via DSL.

Bad Math

"The economics don't add up," said CEO George Bell during Excite@Home's conference call with analysts. Moreover, says the company, the cable partners that market Excite@Home's service to consumers are paying more attention than previously expected to cash flow instead of growth, Excite@Home says. Though Bell and Chief Financial Officer Mark McEachen didn't say so explicitly, the cable operators are presumably wary of the initial expense of installing the service in customers' homes.

The company is forecasting per-share losses, excluding nonoperating costs and other items, of 13 to 14 cents in the first quarter, compared to analysts' forecasts of a 6-cent loss, and a full-year loss of 24 to 26 cents, compared to the current consensus loss of 4 cents.

Despite the larger losses, McEachen says the company expects its earnings before interest, taxes, depreciation and amortization will turn positive in the second half of the year, and the company doesn't anticipate needing to raise cash in 2001.

Changing

The company, controlled by AT&T (T Quote), said the noncash writedown was triggered by the poor online media market, and by its decision to exit certain businesses it now deems noncore. Less than $200 million of the writedown was related to investments the company has made in publicly traded stocks, apparently in Internet companies. Including charges and the writedown, the latest-quarter loss was $5.43 billion, or $13.43 a share.

As part of its narrowing focus on the broadband market, Excite@Home says it's planning to sell its e-commerce hosting business -- created from the acquisition of iMall in 1999 -- and its Enliven business, acquired in late 1998, which has developed technology used to make online advertising more complex and interactive.

"This company has always strived to do more," says Bell. "Now, we're going to strive to do less."

Excite@Home shares fell 72 cents in daytime trading Thursday to close at $7.53, then fell to $6.69 in after-hours trading soon after its results were announced.