Excite@Home misses analyst expectations, shifts focus

Company executives announced that Excite@Home will in the short term change its focus toward growth rather than earnings. Executives told analysts that they expect to sign up more cable-modem subscribers and have plans for further international expansion as a justification for the shift.

On a pro forma basis excluding amortization of goodwill and other non-recurring items, the company reported a loss of $4.6 million, or 1 cent per share, narrower when compared with a loss of $6 million, or 2 cents a share, for the same period last year.

The company was expected to break even at zero cents per share, according to analysts surveyed by First Call. As recently as three weeks ago, the majority of financial analysts polled expected a profit of 1 cent per share.

Quarterly revenues rose to $138 million, up from $78.7 million for the same quarter last year. The company's expenses were in line with estimates, executives said, but revenues fell short of some projections. For example, Merrill Lynch expected revenues of $142 million.

The emphasis on growth represents only the latest in a series of shifts for Excite@Home. The company recently resolved some questions about its future by approving an increased stake by AT&T, its largest shareholder, and by launching @Home 2000, its new broadband start-up screen.

But the switch from an emphasis on earnings--the company posted its first profit in January--toward a growth strategy that is expected to incur losses, comes at a time when Wall Street appears to have grown wary of the broad losses across the Internet sector.

The recent stock market volatility has lead some analysts to speculate that a shakeout could occur if investment capital becomes more scarce, putting greater pressure on dot-com companies to show that their businesses can produce profits.

Excite@Home chief executive George Bell, in a conference call with analysts, attributed the worse-than-expected results in large part to lower advertising sales at Bluemountain.com, the online greeting card company Excite@Home bought last year, and Webshots, Excite's free photo gallery property. At the same time, the areas of strongest growth on the Excite.com portal have been those that garner lower ad revenues.

The company also announced that it expects to post operating losses of between 25 cents and 30 cents per share for the full 2000 fiscal year as a result of its greater emphasis on international expansion and increased marketing investments, both aimed at spurring subscriber growth. Analysts expected an annual profit totaling 10 cents per share, according to First Call.

"Marketing to new users in two or three years will be very expensive," Bell said. "We're going after subscribers now."

The strategy calls for an increase in marketing spending--split roughly 60 percent on the domestic broadband service and 40 percent on international properties--and a shift in personnel and resources from the Excite.com portal toward developing more broadband content.

Excite@Home said it had a total of 1.5 million subscribers for its cable-modem service as of March 31, making the company the nation's largest high-speed Net access provider.

Company executives also offered higher broadband subscriber targets for analysts, many of whom expected the company to claim about 2.5 million customers by the end of the year and 8 million by 2002.

Bell confidently predicted that his company will have 3 million high-speed Net access customers by the end of the year, 6 million in 2001, and 10 million by the end of 2002.

The company also plans to expand beyond cable into digital subscriber lines (DSL), wireless and interactive TV offerings. Excite@Home recently struck an alliance with DSL provider Rhythms NetConnections, its first DSL deal.

Excite@Home executives reiterated that they expect the company to post annual revenue of more than $2 billion by 2002 and to "achieve long-term profitability."

The company was expected to post a profit of 2 cents per share during the second quarter, according to First Call.

Next quarter represents the first time AT&T will include Excite@Home's results with its own numbers. Excite@Home will continue to report its own quarterly figures, although Ma Bell is unlikely to detail Excite@Home's results, executives said.

AT&T, under its new role, holds a 25 percent equity stake in the company and more than an 80 percent voting stake. The company will control the majority of Excite@Home's new nine-member board of directors, though those individuals have not been named.

Excite@Home, which said revenues from its overseas cable-modem and portal ventures spiked 300 percent over year-ago totals, also announced that it plans to pursue an initial public stock offering for Excite Japan and is considering IPOs for some of its other international properties. The company will increase its investments in international businesses during the next four years, though Bell declined to reveal specific sums.

Stock in Excite@Home, which has been on a yearlong decline, closed nearly 13 percent lower at $19.94 ahead of today's earnings report. The company's shares were trading about $1 per share lower in after-hours trading.

Of 18 analysts polled, 16 maintain "buy" or "strong buy" ratings on Excite@Home stock, according to First Call.