Verio Very On (News) August 6, 1999

Verio Very On

August 6, 1999

Internet services company Verio Inc. (Nasdaq: VRIO), a leader in the Web hosting field, reported impressive second-quarter results, posting losses $0.08 better than Wall Street expected at $1.22 per share.

The numbers looked encouraging, as revenues and gross margins increased both sequentially and year-over-year. Operating margins were up from last year as well.

"Verio's organic growth rate accelerated, primarily attributable to our Web-hosting business," said President and COO Herbert Hribar. "We have generated significant growth in sales through our channel programs with a number of large telecommunications firms and our recently launched America Online (NYSE: AOL) program. Also, our direct sales force, which is now bundling Web-hosting packages with DSL [digital subscriber lines] and other high-speed access products, has become a significant contributor to Web sales."

But that's not to minimize the impact of acquisitions on Verio's results. Mid-July's $100 million cash purchase of digitalNATION -- a neighbor of the Fool here in Alexandria -- was one such well-regarded purchase, bolstering the company's presence in the dedicated server arena. That market, geared toward large, high-traffic (and highly profitable) sites, is expected to increase exponentially in size over the next 10 years.

But investors should also be mindful of Verio's new relationship with America Online. While AOL is better known for its appeal to the consumer, it may have found a way to generate increased corporate usership in March through a three-year partnership to promote Verio's services to its approximately 4 million business customers on AOL, CompuServe,, and Digital City via co-branded sites.

If business customers like getting to Verio through AOL -- including the nearly 7,000 AOL PrimeHost and CompuServe BusinessWeb customers that were sent over to Verio -- both companies stand to benefit.

In addition, Verio and AOL were among the first group of companies named to compete with formerly monopolistic domain name registrar Network Solutions (Nasdaq: NSOL). The two companies already partner to provide domain name registration services -- along with Web-hosting and e-commerce services -- to AOL's approximately 1 million U.K. subscribers, perhaps indicating that further European and domestic partnerships in the registration space are on the hoof.

Verio has shown the ability to generate growth not just internally, but through acquisitions, and with its stock rising quickly over the past nine months on the strength of some impressive operating results, it has some valuable currency for funding further purchases. A recent offering of convertible preferred stock, which raised $360 million, fattened the coffers.

Related Site:
Verio Corporate Site

By Dave Marino-Nachison (TMF Braden) (TMF Braden)

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