EarthLink (NASDAQ:ELNK) has its work cut out for it as it tries to venture into new business lines while its legacy dial-up revenues are dwindling. Of course, offering services such as high-speed Internet is a difficult endeavor, considering it has rivalry from giants such as Comcast (NASDAQ:CMCSA) and Verizon (NYSE:VZ) as well as another dial-up ISP competitor in United Online (NASDAQ:UNTD).

In the fourth quarter, EarthLink's net income fell 18% to $29.2 million, or $0.22 per share. Revenues fell by 8% to $313 million. It generated $20.8 million in free cash flow in the quarter, but that was a 41% decrease from the same period the year before.

EarthLink's first-quarter profit decreased 51% to $16.4 million, or $0.12 per share, and sales decreased 7.5% to $309.7 million. Margins took a hit because of the decrease in revenue as well as continued customer defection to lower-margin broadband services. Free cash flow for the quarter dropped by 38%. Investors weren't too concerned, though, since they bid up shares by 6%.

The second quarter at EarthLink contained similar tidings. Profit decreased by more than half to $17 million, or $0.12 per share. Sales inched up by 2% to $332 million. Cash and free cash flow decreased.

EarthLink's third quarter had an element of disappointment -- analysts had expected the company to report a profit of a penny per share, but it reported a $0.02-per-share loss instead. Sales increased 4.5% to $331 million, but that also missed analysts' expectations. Free cash flow decreased by 55% on a year-over-year basis, and its cash reserve fell 61%. However, in that quarter the company did report a sizeable increase in broadband revenues (up 36.7%).

EarthLink is trying to transform itself from a dial-up ISP to an all-around communications company, and it's got lots of irons in the fire as it tries to do so (and is plowing lots of cash into its endeavors). It's not just about high-speed broadband connections, either. It's got its Helio wireless service, a joint venture with SK Telecom (NYSE:SKM), which is an element many people are upbeat about. It's also trying to offer high-speed wireless connections in several major cities; it's joining up with Google (NASDAQ:GOOG) to do so in San Francisco, for example. And it's trying to get involved in other nascent technologies, like high-speed Internet over power lines. Of course, given all the competition right now, I can't help but wonder if all those aggressive plans may be too aggressive and perhaps result in a lack of focus. EarthLink also recently made a convertible debt offering, perhaps to repurchase some of its own shares.

There are obviously some investors who think EarthLink can pull it off and is undervalued given its potential. Let's see what the CAPS community has to say on EarthLink.

Earthlink

CAPS Rating
 * (out of five stars)

Total Bulls

66

Total Bears

21

Bull Ratio

76%

Bear Ratio

24%
Data current as of Dec. 15, 2006.

A very small percentage of CAPS players have an opinion on EarthLink at all, as you can see, but the majority of those who do are bullish.

Here's a particularly bullish CAPS pitch from LarkinSoft last September: "89% of this company is in the hands of the 'smart money,' institutions and insiders. Do they know something the public doesn't? You bet! This stock has been trading near historical lows for 2-3 years and is ripe for a 'surprise recovery.' Since the smart money folks don't invest with intentions to lose money, we can safely predict a 100-200% rise in stock price over the next 18-24 months."

Some of us might disagree on who the "smart money" is, but maybe that's food for thought. And of course, one could argue that EarthLink is one of those unloved stocks that becomes a value play. While EarthLink does trade at a low P/E for a tech company (15 at my last check, although it was just 10 not long ago, showing that the stock has been appreciating rapidly lately), I'm still not convinced growth will come, given EarthLink's challenges with so many plans, not to mention the competition. Certainly, 2007 should give us more indications of what the future holds for EarthLink.

Go to the ends of the earth with further Foolishness:

In his focus on value, Philip Durell often points to unloved stocks as bargains for investors in Motley Fool Inside Value , which has a total return of 24.26%, beating the S&P by 6.83%.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.