Posts for Ticker ‘ELNK’

Virgin Hopes Helio Can Slow Customer Defections (VM, ELNK, SKM, S)

If you have followed the launch of the "cool cellular" service called Helio over the last year or so, you might be among the few who remembered it even launched.  This was the joint venture between Earthlink Inc. (NASDAQ: ELNK) and SK Telecom (NYSE: SKM).  Richard Branson’s Virgin mobile USA Inc. (NYSE: VM) has decided it might be able to to turn this into shinola, and if it doesn’t work out it will have ended up being a tiny gamble.

Virgin is acquiring Helio for nearly $39 million.  But it is acquiring the company with 13 million shares of stock.  The interesting part here is that Virgin may actually get to lower its network costs in the carrier agreement with Sprint (NYSE: S).

Helio will give Virgin Mobile approximately 170,000 existing subscribers with an average revenue per of close to $80.00.  It will also give it a a handset inventory of some 85,000 units with a book value of $17 million.  With 20% of Virgin’s customers migrating to post-paid products, the company hopes this will add to the retention.

Virgin Group and SK Telecom will each invest $25 million of capital into the operations in the form of mandatory convertible preferred stock with an $8.50 per share conversion price. These will have a four-year maturity and a 6% annual dividend, and SK Telecom will own a combined equivalent of approximately 17% of Virgin Mobile USA and will take two seats on Virgin Mobile USA’s Board of Directors.

EarthLink shares are down over 3% today at $8.72 as this will likely result in a charge for the company.  Virgin Mobile USA shares are up less than 1% at $3.00 on the day.

Jon C. Ogg
June 27, 2008

Posted on: June 27, 2008 – 10:27 am in Wireless, , , ,

EarthLink Manages Costs To Beat Earnings (ELNK)

EarthLink inc. (NASDAQ: ELNK) has posted results and frankly for a company that is an independent ISP these results aren’t all that bad.  Income from operations was $22.6 million, or $0.19 EPS, on total revenues of $281.98 million.  First Call had estimates at $0.15 EPS on $280.96 million in revenues.  Net losses after items was listed as -$0.08 EPS.

EarthLink ended the year with $288.6 million in cash and marketable securities.  The company has also repurchased some 10.1 million shares.  The company trimmed its workforce by more than half from the year earlier to 998 employees.

SUBSCRIBERS:
Narrowband access consumer:    2.624 million
Broadband access consumer:      1.059 million
TOTAL consumer:                            3.683 million
Narrowband access business:     27,000
Broadband access business:        66,000
Web Hosting:                                     100,000

For 2008 the company is guiding adjusted EBITDA of $230 to $250 million, net income of $140 to $155 million, and free cash flow of $$190 to $220 million.

Jon C. Ogg
February 7, 2008

Posted on: February 7, 2008 – 7:41 am in Earnings, Internet,

ISP Earnings Preview: Earthlink Vs. United (ELNK, UNTD, TWX)

Thursday is going to be an interesting earnings day if you follow the few independent Internet Service Providers (ISP’s).  EarthLink, Inc. (NASDAQ: ELNK) and United Online Inc. (NASDAQ: UNTD) both report earnings on Thursday, and these results may end up being closely watched by Jeff Bewkes of Time Warner inc. (NYSE: TWX) for some rather obvious reasons.

In the early morning we’ll get to see earnings out of EarthLink Inc. (NASDAQ: ELNK).  The estimates from First Call for the Internet access and communication provider are $0.15 EPS on $280.96 million in revenues, but be advised that the estimates vary greatly. Next quarter estimates are $0.21 EPS and $290.17 million in revenues, and fiscal 2008 estimates are $1.01 EPS on $ 1.07 billion in revenues.  Analysts have an average price target of north of $9.00.  At its last earnings, EarthLink gave a fiscal free cash flow target of $200 to $240 million, although it has more restructuring than analysts can agree on.  It listed the following for subscribers as of last quarter: narrowband at 2.856M and broadband at 1.093M for as total of 3.949M consumer subscribers.  For business customers it listed the following: 30,000 narrowband businesses, 68,000 broadband businesses, and 104,000 web hosting accounts for a total of 202,000 business accounts.  These numbers have shrunk in EVERY SINGLE CATEGORY.  Shares closed down about 1.2% to $6.67 on Wednesday and the stock’s 52-week trading range is $5.90 to $8.36.  Its market cap is $802 million.

On Thursday afternoon we’ll get to see earnings out of United Online Inc. (NASDAQ: UNTD). The estimates from First Call for the internet provider are $0.30 EPS on $127.82 million in revenues, although this one is very thinly followed by analysts and there are discrepancies on estimates beyond this quarter.  Estimates for fiscal 2008 are $1.10 EPS on $508.10 million in revenues.  It appears that analysts still have an average price target of $17.00, although we would again urge caution in trusting our number or anyone else’s on these.  The biggest problem here is that after its failed Classmates.com IPO got pulled, United has lost its mojo.  Unlike most Internet stocks, this actually has a decent dividend $0.20 each quarter. Its communications unit, or the ISP of NetZero and Juno listed that last quarter paying accounts had declined some 134,000 to 2.2 million; and this one is now harder to value directly compared because its content/media revenues were roughly two-thirds of the size of the Communications/ISP unit.  United Online closed up 1.5% at $10.87 on Wednesday, and its 52-week trading range is $9.55 to $17.97.  Its market cap is $735 million.

We have covered both of these in our Special Situation subscriber letter, and both are routinely screened for our weekly "10 Stocks under $10" subscriber letter.  In fact, both of these fit in our "small cap internet watch list" for companies that we think will ultimately either be acquired or will merge up under the right circumstances.  While these businesses are declining, there is actually some value here for the right financial asset buyer.  In a slowing economy it is even possible that a portion of those who prefer the more expensive broadband triple play packages from cable or the telecoms might not have a choice BUT to go back.  That may be heresy to some, but it is possible.

But we’d like to take a walk on Hypothetical Lane here.  If you are Jeff Bewkes at Time Warner inc. (NYSE: TWX) and want divest the rest of the legacy AOL Internet access business, you’d probably be watching these two reports quite closely. The TWX earnings call transcript from Blogging Stocks is here. This will derive an implied market value per subscriber on a discounted basis.  Based upon what you see there you would begin to work these numbers backwards.  How many independent broadband and narrowband ISP’s with large customer bases does the U.S. need with all the Internet access choices out there?  Under the right circumstances and a little creativity you might even be able to imagine a business threesome.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 10:38 pm in Earnings, Internet, , ,

As City-Wide WiFi Fall Apart, An Opening For WiMax

As the municipal WiFi business at Earthlink (ELNK) has come under financial pressure, the future of city-wide wireless projects is in trouble. ELNK shares are down over 20% in the last two year, even after a recent run-up due to cost cuts at the company.

ELNK was willing to bank on a program where it would pay up-front costs to get networks up and running. But, due to its financial difficulties, The Wall Street Journal writes "The Internet service provider now wants cities it’s negotiating with to pay for the networks’ construction."

The change in heart at Earthlink may help demand for the WiMax products that Sprint (S) and Clearwire (CLWR) are rolling out. WiMax offer ultra-high speed broadband connections over the airwaves. Sprint is planning to use the technology for its new 4G cellular network.

With Sprint’s shares down 25% over the last two years, and trailing AT&T (T) and Verizon Wireless in cell subscribers, anything that helps the demand for WiMax is critical to the company’s future.

Douglas A. McIntyre

Posted on: September 3, 2007 – 8:08 am in Wireless, , , ,

Municipal Wi-Fi Loses It Juice

The big city-wide WiFi deployment that was going to make broadband access to the masses a reality was to start in San Francisco. After all, it is the large city at the region that is America’s tech cradle. But, it looks like it is not to be.

The SF infrastructure was going to be built by Google (GOOG) and Earthlink (ELNK). According to MarketWatch: EarthLink is now "doing a detailed review of the business model" associated with municipal wireless, ELNK CEO Huff said. "The Wi-Fi business as currently constituted will not provide an acceptable return."

In other words, there is no money to be made, and Earthlink is not willing to take a big loss.

Municipal Wi-Fi was to be the modern day equivalent of water and sewage service, city-side services. But, in most cases high-speed wireless was to be free.

Fights between city official and tech providers have delayed this just as 3G and 4G networks are being bought to market by the cell carriers and Sprint (S) and Clearwire (CLWR) are rolling out WiMax to most big cities and much of the rest of the country.

With new technology on the way and city-wide Wi-Fi projects bogged down, it is likely that none of them will ever become a reality.

Douglas A. McIntyre

Posted on: August 3, 2007 – 4:58 am in Uncategorized, , , ,

Media Digest 7/2/2007 Reuters, WSJ, NYTimes, FT, Barron’s

According to Reuters, Australian conglomerate Wesfarmers bought retailer Coles for $18.8 billion, the largest buy-out in Australian history.

Reuters writes that Virgin Media (VMED) is seeking a buyer, and Carlyle Group is considering a $20 billion offer.

Reuters writes that some Apple (AAPL) iPhone buyers have had activation problems getting onto the AT&T (T) network.

The Wall Street Journal writes that Bear Stearns (BSC) may take until July 16 to add up all of the loses from its hedge funds because some of the securities they own are so thinly traded.

The Wall Street Journal says Universal Music may not renew its deal with Apple (AAPL) for a long contract term. It may opt for s shorter deal. Music publishers have been upset about their royalties from the music store.

The Wall Street Journal writes that surveys show the teenagers are more likely to accept ads on social networks if the come in the form of widgets, small interactive software downloads.

The Wall Street Journal writes that Altria (MO) is creating cigarettes aimed at Indonesia, the world’s firth largest cigarette market.

The Wall Street Journal writes that Gap (GPS) is launching a credit card that can earn point for Gap products even if the card is used for charges outside the company’s stores.

The Wall Street Journal writes that music publisher EMI and tech company Snocap have reached a deal so that music artists can sell their albums directly from their own websites.

The New York Times writes that Asia consumer electronics markets are trying to keep from being hurt by the Apple iPhone the way that they were the iPod.

The New York Times writes that Yahoo! (YHOO) is introducing ads targeted by behavior in an attempt to offer a product that its rivals do not have.

The New York Times reports that the Microsoft (MSFT) Xbox Live is being used to market movie and TV show downloads.

FT reports that Kraft (KFT) is in talks with Danone about buying its biscuit unit.

Barron’s writes that Earthlink (ELNK) will probably go through a restructuring to make the company more attractive to investors.

Douglas A. McIntyre

Posted on: July 2, 2007 – 3:28 am in Uncategorized, , , , , , , , , ,

Internet Taxation Woes Headed Your Way

If you sell anything online, own an ISP, produce online content, send electronic data, or rely on Internet connectivity for your paycheck, then you better pay attention to a movement that states and local governments are pushing for.  The states and local agencies are trying to achieve an ban on Internet taxation.  The truth is that it is already hard to know just what is being gone after, but the two most common taxes are of course "SALES TAX" on online shopping, and what is the equivalent of more "ACCESS TAXES" on ISP’s.  In theory you could even ultimately end up with an email tax if this were allowed to go unchecked.

This is not a republican or a democratic issue at all.  It’s a "state and local" dragnet in a fight to get their hands on a higher tax base.  The problem with this is that it would require businesses to know not just their own local tax laws, but they could literally be on the hook for taxes 1,500 miles away where the company has no offices but has a customer who purchased something.  CNET has a great article on this, and you should definitely read it.  The sad thing is that this only scratches the surface.

If you are a business owner or even a buyer of ANYTHING online or pay for cable, broadband, wireless, or the old dial-up Internet access you are all in the same boat.  It is your responsibility to find out your Congressman’s (Congressperson’s) position on this.  There is absolutely nothing good that will occur from this except that individuals will pay more for every service and good, and businesses will literally be bogged down even more in regulatory issues around the country.

If your Congressperson gives you the "undecided answer" or the position that "this Internet tax ban may need to end" then they need to be asked how they’ll vote when they have petitions galore flooding their mailbox will influence their decision.  The only winner here would be state and local tax authorities and of course all the attorneys that have to be hired to fight extra taxes on business.  Physical goods have inflation, yet this will be a mystery "taxflation" on anything on the Internet.

The National Governors Association is part of the lobbying trying to overturn this ban, which would of course benefit their states.  The truth is that many of the backers hoping to get the ban lifted will claim that if the ban is extended it will force them to bump up taxes elsewhere.  That is hogwash, they know it and you know it.  This comes up every few years, and it is important to make sure that this ban never gets lifted.  The truth is that Internet taxes already exist, but this would be an all out assault on small businesses and large businesses by state and local governments.  Once again, this is not a partisan event but an opening up of more taxes by local and state governments that will not be good for any businesses or citizens.

eBay (EBAY) has been under IRS pressure to divulge information to the IRS over those who sell more than $5,000.00 in auction goods per year on their site.

If Amazon.com (AMZN) had to collect taxes for every single state out there, including states where they have no operations, what do you think that does for processing fees.

Yahoo! (YHOO), Earthlink (ELNK), Google (GOOG), and countless more will all be under fire if this Internet tax ban is removed.

If you buy goods out of state at a physical location, it is very rare that there "tax exemptions" unless it is shipped out of state and even then most establishments make the buyer pay the local sales taxes.

This will literally be a mess for everyone if the tax ban is lifted and any company whose main operations come from any sort of sales or communications will see their costs go up.  The costs won’t just be in the obvious taxes, it will be in the interpreting if their is truly a liability in the myriad of mystery bills they will start receiving in the mail.  It is easier than ever to make your voice heard by your representatives, so don’t take a "wait and see" attitude on this issue.

Jon C. Ogg
May 24, 2007

Jon C. Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 24, 2007 – 10:48 am in Internet, , , , ,