SAN FRANCISCO -- To keep up with Larry Winkler, vice president and treasurer of PsiNet (PSIX) , a provider of Web hosting and high-speed Internet access, you need a cable modem in your head. He talked so fast at the company's presentation at the Robertson Stephens Tech 2000 conference that he likely spit out twice the information of any other presenter.
Winkler's breathless enthusiasm for his company has attracted many supporters; the stock is near a 52-week high and closed up 4 Wednesday. Robbie analyst Richard Juarez, for one, called PsiNet one of the most exciting companies at the conference. Note: Robbie is an underwriter of PsiNet.
To hear Winkler tell it (and you had to stay on your toes to get it all), PsiNet plans to be in every major market worldwide -- next stop, Beijing, in the second half of the year -- and won't accept less than being one of the top three providers in each area. If it can't grow by itself in a market, PsiNet's effusive representative put it, it will simply buy the No. 2 or 3 player.
The company's largest business is selling Internet access to retail and wholesale customers via a 1 million-mile fiber optic network. With traffic doubling every six months, PsiNet is now generating $421 million annually in Web access accounts, based on fourth-quarter revenue.
But PsiNet's fastest-growing market is Web hosting, a business that provides Internet services to corporations. Revenue there is running at $58 million a year, with average yearly sales per account nearly tripling to $140,000 from the third to the fourth quarter.
Alas, profits are another story. PsiNet, once talked about as a takeover candidate, lost $224 million in the fourth quarter, compared with $133 million in the same period the year before. The Street expects it to lose $161.2 million in the March quarter, according to the
Thompson First Call
survey of analysts.
Winkler didn't discuss profitability, nor why his CFO, Edward Postal, left last month to join a privately held Internet company,
Maybe he would have gotten around to it, but the poor guy just ran out of time. Winkler was so jazzed during his presentation that he just kept talking when an alarm sounded to tell him his time was up. Someone even turned on the background
but that still didn't stop him. The mike went off, and hordes of people began trooping in to hear a seminar on e-processing. Not until someone cranked up the Muzak even higher did Winkler get the message.
In this new Internet-driven world, some old dogs can learn new tricks. That's the message from Roberston Stephens analyst Andrew Jeffrey, who covers information services. These are companies in the outsourcing business -- operations that are handling payroll processing, for example, or financial services software. They used to handle the work over proprietary systems, but now are doing it over the Internet in a new market Jeffrey calls e-processing.
There are a host of new publicly traded companies in this area, including
. But Jeffrey likes some old dogs that have been around forever and are just now adapting to the new world. The key to picking a strong company in transition, he says, is to find one with not only revenue from licensing software but with recurring revenue.
That means a company with customers who pay on a continual basis and with a pricing model that increases as the processing job increases. He has strong buy ratings on two companies:
SunGard Data Systems
which makes investment accounting systems, and
, which makes financial data processing systems. (Robbie is an underwriter for neither company.)
SunGard, he says, generated $120 million in e-commerce revenue in 1999 and is trading significantly below its historical valuation, and FiServe is trading near its 52-week low. ''It hasn't missed earnings in 14 years," Jeffrey said.
The Cisco of Cable
If you want to feel bullish about
prospects for selling network processors, just sit at a lunch table with Abbot Gilman, co-founder and COO of privately held
Broadband Access Systems
, a maker of network equipment for digital cable systems. That's because every BAS box sold will have at least one, if not two, of Intel's new network processors.
Gilman sees his company as the next
of digital cable, which is saying a lot considering that there isn't at this time a consumer using a cable modem tied to Gilman's equipment. Not to mention that his chief competition right now is Cisco. His other competitor is
That doesn't bother Gilman, though. New digital cable systems from
will need an entirely new platform. "Our product supports their model," he says.
BAS got its first round of financing in May 1998 and secured a final round of $5 million Wednesday from Paul Allen's
. He expects to take the company public in the second half of the year. The company began shipping its equipment to cable operators in October and expects to sign up four cable operators every two to three weeks over the next two to three months. BAS has made 60 boxes so far, each one capable of handling about 3,500 cable subscribers and costing about $250,000. The company estimates that 20 million people will have cable modems by 2004.