*Update* Exodus Does It Again: Revenue Rises 43% Sequentially

The Internet company posts a strong quarter and sets a $100 million acquisition.
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Exodus

(EXDS)

reported a first-quarter loss of $22.2 million, or $1.09 a share, as revenue more than quadrupled from year-ago levels to $30.1 million. The loss was narrower than Wall Street expected and revenue jumped 43% from fourth-quarter levels, also exceeding analysts' expectations.

The stock jumped 10, or 14%, to close at 84 ahead of the news.

For its year-ago first quarter ended March 31, 1998, the company reported a loss of $13.3 million, or 96 cents a share, before charges. All figures exclude the effect of a recent 2-for-1 stock split. The

First Call

consensus estimate had the company losing 57 cents a postsplit share, or $1.14 a presplit share.

Exodus also said it would acquire closely held professional services provider

Cohesive Technology Solutions

, an affiliate of New York private investor

Welsh Carson Anderson & Stowe

, for $100 million. The acquisition of the Palo Alto, Calif., company is designed to fill out Exodus' service offering.

Exodus also nailed a few other milestones. The company said it surpassed the 1,000-customer mark and that annualized revenue per customer rose to $148,000 from $133,000. The company also boasted that 47% of its new customers were in the enterprise, bringing the total number of enterprise customers to 400. Finally, Exodus said that two more of its data centers reached EBITDA profitability, bringing the total number of EBITDA-positive data centers to seven out of a total of eight.

The following story was posted at 10:18 a.m. EDT:

Wall Street Expecting Exodus to Show Its Growth Is Real

SAN FRANCISCO -- As

Exodus

(EXDS)

prepares to report first-quarter earnings this afternoon, revenue growth is the name of the game. That's because the Web-hosting and network-management company has posted nine consecutive quarters of more than 40% sequential revenue growth. Investors and inquiring analysts want to know: Can the company do it again?

The answer: Most Exodus watchers say it's possible, although unlikely, that the Santa Clara, Calif., company can pull this off again. But even if it fails to hit the mark, analysts say Exodus is likely to report another solid quarter.

"It's absolutely in that range," says Farrokh Billimoria, an analyst with

Hambrecht & Quist

, referring to the revenue growth rate. "But even if they did 35% to 38%, that would be huge." H&Q has no underwriting relationship with Exodus.

Billimoria expects Exodus to post a loss of 57 cents a share on revenue of $26.6 million, compared with a loss of 46 cents in the same quarter last year and a loss of 50 cents in the most recent quarter.

Goldman Sachs

analyst Rakesh Sood, who upgraded Exodus Tuesday to the recommended list from market outperform, believes the company will post a loss of 56 cents a share on revenue of $26.1 million. "We think that there is considerable potential for an upside surprise in revenues," wrote Sood in his upgrade note. Goldman has an underwriting relationship with Exodus.

The

First Call

consensus of 13 analysts has Exodus losing 57 cents a share. The unofficial estimate, or whisper number, calls for a much smaller loss of 44 cents. That would fall in line with the company's track record: Exodus has beaten or matched the Street's estimates for the past four quarters. Even though Billimoria's estimate nearly matches the consensus, he's hedging for an upside earnings surprise. "It's highly unlikely that they'll beat the estimates by that much," says Billimoria, speaking of the whisper number. "But I think they'll beat the number by at least 2 to 3 cents."

In late March, Billimoria upgraded Exodus to a strong buy from a buy rating, placing it on H&Q's focus list, which highlights the firm's top 30 picks from a total list of 440 stocks.

Goldman's Sood expects Exodus to show continued growth in the managed-services side of its business, which company executives say improves profit margins and has been instrumental in winning new accounts. In addition to selling Internet access and server hosting to companies, Exodus also sells a variety of services such as caching, network security consulting and data storage. Managed services constituted 9% of revenue in the third quarter and 14% in the fourth quarter, says Sood, who looks for that figure to climb to 20% by the end of the year. But it's difficult to track this figure because Exodus doesn't break down its revenue into separate parts.

Some investors are also hoping to see continued growth in the number of Exodus' customers. Matt Ankrum, an analyst with

Janus

, one of the 10 largest institutional shareholders in Exodus, is expecting 90 to 100 new customers this quarter. Exodus started the quarter with 830 customers, up from 642 the previous quarter.

One other key metric is average revenue per customer, which could signal an increase the company's margins. Exodus CFO Richard Stolz said that average revenue per customer grew to $133,000 in the fourth quarter of 1998 from $127,000 in the third quarter. "It could be moving up, but I'm comfortable if it moves down," says Ankrum.

Even though analysts and investors are bullish on Exodus, the company continues to burn through cash at a startling rate. Last year, for example, Exodus lost $66.4 million, compared with a loss of $25 million in 1997. But analysts are unfazed by these numbers, regarding the red ink as a natural result of the company's growth and the investment required to build 10 more data centers by the end of the year. They take comfort in the fact that Exodus' data centers are projected to reach EBITDA profitability in 13 to 15 months. Already, company executives claim five of their eight current data centers have reached this stage.

"If they were ever concerned about growth," says Ankrum, "they could turn off the spigot on growth and just gush cash."