At Exodus, Plans to Expand Gain Investor Support

At a recent meeting, the company detailed a new strategy that includes an aggressive marketing campaign, increased sales force and overseas expansion.
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Exodus Communications

(EXDS)

, under intense pressure from both big and small competitors, is boosting its sales and marketing efforts at home and pushing overseas.

And investors like the company's plans so far. Exodus' stock climbed as high as 116 1/4 Wednesday before closing at 109 5/8, up 1 13/16, after the company on Tuesday laid out its plans at its first daylong investor meeting.

The company told about 75 analysts and investors gathered at the

Westin Hotel

in Exodus' hometown of Santa Clara, Calif., that it will attack its competitors with a new marketing campaign, while at the same time boosting its sales force by 34%, according to analysts and investors who attended the meeting. It also indicated that it's dealing with its rapid growth better. And the company laid out an aggressive overseas expansion plan during the seven-hour meeting, which was closed to the press.

An Exodus spokeswoman confirmed plans to hire new salespeople and expand overseas but declined to comment on yesterday's talks.

"Exodus is continuing to execute ahead of our expectations on all fronts, including infrastructure expansion, managed services and customer retention and acquisition,"

Dain Rauscher Wessels

analyst Stephen Sigmond wrote in a research note Wednesday. "With regard to the December quarter, we believe revenues and EBITDA

earnings before interest, taxes, depreciation and amortization are tracking ahead of our expectations." Dain, which maintains a strong buy/aggressive rating on the company, hasn't done any underwriting for Exodus.

Analysts expect Exodus will post a loss of 35 cents a share this quarter and a loss of $1.19 a share for the year, according to

First Call/Thomson Financial

. Next year, the company is expected to post a loss of 65 cents.

One of Exodus' most important initiatives involves attacking upstart content-distribution companies like

Akamai

(AKAM) - Get Report

and

CacheFlow

(CFLO)

. The company is rolling out a marketing campaign for its service that caches, or stores, Web content. Exodus is working with search and caching company

Inktomi

(INKT)

, which pioneered the caching market with its traffic server, to offer this service.

Exodus also wants to best the competition by beefing up its sales force. That could help it compete against larger and richer hosting players like

AT&T

(T) - Get Report

,

Intel

(INTC) - Get Report

and

MCI WorldCom

(WCOM)

. Analysts say the company announced plans to add 50 salespeople to its base of 149 over the next two quarters.

Exodus also seems to be gaining momentum on the international front. Demand for Web hosting is so strong in the company's London data center -- which is already half full -- that Exodus plans to expand the facility by an additional 100,000 square feet in the near future. The typical Exodus data center is 50,000 to 75,000 square feet.

"They're ramping up over in Europe very aggressively," says Brandon Rinner, associate portfolio manager with

McKinley Capital

, which is long Exodus. "I think Europe and Asia are huge areas for them."

In fact, Exodus next year plans to add new data centers in Frankfurt, Amsterdam, Paris and one other European city. And through its pending purchase of Internet service provider and hoster

Global Online Japan

, Exodus is poised to attack the Asian market. Analysts say the acquisition is scheduled to close before year-end. That would leave Exodus with 22 data centers (19 in the U.S. and three overseas) by the end of 1999 and 37 facilities by the end of 2000.

Amid all this expansion, some investors say Exodus is managing its growth better these days.

TheStreet.com

wrote about Exodus'

customer-service problems in August.

"It's something the company is very focused on," says Rinner. "They've got great management, and there's very little that they'll overlook."

Still, some investors say they will continue to closely monitor Exodus' progress.

"The important thing is that Exodus is still dominating the sector," says David Levy, an analyst with

Hambrecht & Quist

, which maintains a buy rating on the stock and has done underwriting for the company. "But as these new competitors come in, Exodus has to be able to maintain its superiority. That will always be their greatest risk."