On the eve of the company's third-quarter earnings announcement, Excite@Home (ATHM) stock has taken an exciting journey -- but ended up right back at home.
And that, analysts suggest, is where it will stay for the foreseeable future -- a state of affairs that could prove expensive for
, controlling shareholder of the high-speed Internet firm.
Shares in Excite@Home fell 88 cents Monday to close at $10.06. That's well off its high of $99, hit in April 1999, and right in the neighborhood of @Home's split-adjusted first-day close of $8.50 the first day the company traded in 1997.
The Big Questions
The travails of the company's stock, which fell to a 52-week low of $8.13 Thursday, reflect two types of uncertainty. On the one hand, there are the concerns limited to Excite@Home: Will the company be able to sign up customers for its cable TV-based Internet service as quickly as it has promised investors? On the other hand, it's being hit by the same worries that have hit all other media-focused Internet companies, from
on down: How badly and how long will the company suffer from weakness in the online advertising market?
The news on either front will have to be very good indeed for the company's third-quarter financial results, due to be released Tuesday evening, to have any effect, say analysts.
Excite@Home is expected to report a pro forma loss, excluding goodwill amortization, of 10 cents per share for the third quarter ended Sept. 30, according to analysts surveyed by
. That compares to a 1 cent loss in the third quarter of 1999.
But the real numbers that people will be hanging on will come elsewhere in the quarterly financials.
One of those figures is the number of subscribers the company will report for its broadband Internet service. The unofficial consensus is 2.2 million, up 400,000 from the second quarter. Even if Excite@Home does add 400,000 net new subscribers, it's still laboring under a very publicly stated target of hitting 3 million subscribers by the end of the year -- implying a quota of 800,000 net new subscribers for the fourth quarter. The company fell behind its self-imposed pace in the second quarter, when it said new installations suffered from a shortage of cable modems.
The other headline number will be media revenue (as opposed to subscription revenue). That number is hoped to be somewhere between $90 million and $100 million; analyst Dana Serman of
, for example, expects $97 million in media revenue, while Frederick Moran of
expects $93 million, an estimate he recently revised downward from $99 million.
But more important than the actual number, says Serman, is the outlook for online advertising revenue -- whether the company has any supportably optimistic prediction of strength over the next few quarters in online advertising. As Serman points out, when AOL reported good numbers for advertising and e-commerce in its latest quarter, investors jumped on the not-so-good news that the company's stockpile of ad revenue not-yet-recognized stayed flat from one quarter earlier. "AOL's backlog mattered more than the results for the third quarter," Serman said. "Media-centric online stories right now are clearly suffering." Serman ranks Excite@Home an outperform, his firm's second-highest rating; Lazard hasn't done underwriting for the company.
No one, however, seems to be expecting big leaps in the stock as a result of any reported financials. David Lee Smith, media analyst at
Dain Rauscher Wessels
, for example, says he doesn't expect any upward movement in the stock until next year. He points to several factors that will continue to weigh down Excite@Home shares in 2000, including the November election and tax selling in December. Smith has a buy on Excite@Home, his firm's second highest rating; his firm hasn't done underwriting for the company.
Moran at Jefferies is waiting for the completion of Excite@Home's announced deal to merge its international operations with the
unit of European cable operator
United Pan-Europe Communications
, a move that will pull Excite@Home's international losses off its profit-and-loss statements. Moran has a hold on Excite@Home; Jefferies hasn't been an underwriter for the stock.
While individual shareholders in Excite@Home certainly are bleeding from the stock's drop, a truly phenomenal hemorrhage could be in the offing for AT&T. As part of its deal earlier this year to consolidate control of Excite@Home, AT&T gave Excite@Home
put options to fellow shareholders
. Those options give each of the cable operators the right to sell its shares of Excite@Home to AT&T at the minimum price of $48 apiece, payable in cash or AT&T shares, anytime between Jan. 1, 2001, and June 4, 2002.
Because those shareholders hold about 30 million shares of Excite@Home apiece, there's a lot of money at stake. If they exercise their options at the current price, AT&T could end up paying each about $1.4 billion for shares that would cost about $300 million in the open market. Serman, who doesn't follow Cox or Comcast, says that even if they exercised their options, chances are slight that they'd drop the Excite@Home service and that Excite@Home would suffer operationally.
But at least shareholders would know that AT&T is feeling their pain.