Internet Growth Powers Qwest to Third-Quarter Profit - TheStreet

Internet Growth Powers Qwest to Third-Quarter Profit

Earnings come in at 3 cents a share, excluding charges.
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In a strong performance that exceeded expectations, Qwest Communications (QWST) today posted its first billion-dollar quarter in terms of revenue.

For the third quarter ended Sept. 30, Qwest earned $19.8 million, or 3 cents a diluted share, as compared to a loss of $6.9 million, or 1 cent a share, a year earlier. The latest-quarter results excluded a merger-related charge. Revenue rose 26% to $1.02 billion from $806.8 million a year ago. The results were in line with the consensus estimate from

First Call/Thomson Financial

.

Analysts were pleased with strong growth in the Internet and data services sectors, which in the latest period accounted for 23% of total revenue. William Klein, who covers the telecom services sector for

Wasserstein Perella

, called the figures "incredibly strong. This is the key area to look at because that's where the growth is going to come from." Klein has a strong buy on Qwest and his firm hasn't participated in any underwriting for the company.

Qwest reported third-quarter earnings before income, taxes, depreciation and amortization of $190.5 million, up 62% from $117.6 million a year ago. That figure tracks the company's cash flow and indicates Qwest is keeping costs under control.

Qwest also set an expansion of its CyberCenter Web-hosting operations, another strong source of growth. The company plans to add seven more centers, bringing the total to 14.

James Linnehan, communications services analyst with

Thomas Weisel Partners

, said, "Passing $1 billion is significant. But I'd like to know about the health of that $1 billion. Is it sustainable?"

Despite Qwest's assertion Wednesday that the deal was proceeding "quickly," some uncertainty remains regarding the pending merger with

U S West

(USW)

, said Andrew Schroepfer of

U.S. Bancorp Piper Jaffray

. He also has a strong buy on the stock and his firm has also not participated in any underwriting.

The stock was up 1/8 to 34 9/16 in midmorning trade. It is, however, down from its 52-week high of 52 3/8, largely because of investor dissatisfaction with the U S West offer, Schroepfer said. "Qwest investors wanted high growth and didn't want to own U S West, a lower growth company. Now there's a new shareholder base," noted Schroepfer.