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September 7, 2000
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To the Board
David Gardner Challenged:
Let me say first of all that I'd be more than happy for this board in concert, or for one individual who steps forward, to write a 750-word document setting forth the bullish case for Excite@Home as you see it.
Well, I just finished a 783 word bull document. I figured I'd post it here to get comments:
If you want to get in on a heated debate this Fall, you don't even have to look to the gridiron. You don't even have to go to a Mike Tyson fight. You can find all the controversy you need right at home, or rather @Home. The informal chat format that The Motley Fool experimented with and titled Excite@Home as Problem Child has caused a whirlwind of responses. The only thing almost everybody agrees on is that the future of Excite@Home will be, well, Exciting to watch.
The company's stock price has had a wild ride the past couple of years. From the Rule Breaker's buy price on December 4, 1998 of a split adjusted $28.04, ATHM shot up to nearly $100 only four months later. From that point; however, it has declined to its current price of under $20 a share.
Why am I discussing stock price at The Motley Fool? The reason is simple. This company is in such an early stage of development and has undergone such tremendous changes over the past two years that Wall Street simply doesn't know how to value it. Heck, even the Fool port managers were tossing around the idea of selling ATHM out of the Rule Breaker port, in between bites of deli sandwiches washed down with Mr. Pibbs.
I think the reasons are fairly clear why ATHM has been beaten down. There has been a lack of clear direction, caused by a confusing ownership structure (the majority owners are cable companies, who also happen to be Excite@Home's partners and customers). The Excite portal, once a well branded Internet juggernaut has been relatively meek in its performance over the past year. Exclusive contracts granted to Excite@Home to provide Internet access to over 20 cable companies' subscribers was in jeopardy when the City of Portland tried to force AT&T to open the cable lines to Excite@Home's competitors. Management has not effectively sold the story of Excite@Home to major investors. Yes, there are a lot of reasons the stock price is low right now�..
Given all that, why would anyone be bullish on the future of this company? Well, I'm glad I asked�
1) Excite@Home is positioned in the middle of the coming broadband revolution. Even bears on this company will willingly acknowledge that "the need for speed" is pent up in the market. @Home is the leader in broadband subs, passing two million subscribers this summer.
2) Only two million subscribers, what's the big deal? Well, by the end of 2002, George Bell (Excite@Home's CEO) is expecting 10 million subscribers! The biggest bottleneck to subscriber growth has not been demand, but rather a complicated installation procedure that requires a truck to roll to each household that subscribes. Self install kits are expected very soon that will speed the installation process dramatically.
3) If you thought @Home is too domestic, think again�Excite@Home has not just targeted the United States market. With partnerships in many countries outside the US, the company pulled their overseas strategy together with a 50% partnership with Chello, named ExciteChello. This is the largest broadband access company outside the US. While the number of subscribers are fairly low right now, the pay by the minute phone services in many countries (even for local calls) makes getting on the internet prohibitively expensive for most people. Thus, broadband access over cable should reach penetration levels overseas much higher than what is expected in the US market.
4) So, what's the cache, you ask? It's @Home's mechanism to deliver better service to its customers, while saving traffic on the fiber optic backbone it's leasing from AT&T. Popular content is distributed to caching servers throughout the country. This will allow @Home subscribers to enjoy speedy service to the most popular sites, even if "the Internet" is bogged down by traffic.
5) OK, but all you've been doing is discussing @Home, what about Excite and its lackluster performance? Excite has been gearing up for broadband growth by creating a broadband targeted portal. While the acquisitions (like bluemountain.com, webshots.com and the recently acquired gaming site, pogo.com) have not yet been producing spectacularly for the company, their focus on broadband content will hopefully become evident well before @Home has its 10 millionth subscriber.
6) In addition, two early acquisitions should prove to be winners. Matchlogic is a technology that finds out what you're interested in and targets ads that you would like to see, then Enliven makes those ads interactive (allowing you to play games or even order merchandise directly from the ad without leaving the site you were on.
Finally, if all that doesn't convince you, click on www.kicksbutt.com and see where that takes you ;^)
What do y'all think?
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