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Excite@Home subscriber growth estimates disappoint

The cable Internet access provider reports a smaller second-quarter loss than analysts expected, but its subscriber growth doesn't quite reach estimates.

Excite@Home, the largest provider of high-speed cable modem Internet access, reported a smaller second-quarter loss than analysts expected, as the company sought to increase its subscriber base at the expense of profitability.

Excite announced it lost $45.3 million, or 11 cents a share, compared to a loss of $5 million or one cent per share in the second quarter of last year. Analysts surveyed by First Call/Thomson Financial predicted a loss of 12 cents per share.

The company said its subscriber base increased to 1.8 million from 1.5 million, slightly less than the 1.9 million analysts had predicted.

Excite had its first ever profitable quarter in the fourth period of 1999, when it reported a pro forma income of $514,000, or zero cents a share. When the company lost $4.6 million, or one cent per share the following quarter, company executives announced Excite would focus for the short term on growing its subscriber base rather than earnings.

In a conference call today, CEO George Bell acknowledged that the company did not meet growth estimates, and blamed a factory fire that resulted in a modem shortage.

"The good news is the shortage has been rectified; the modems are flowing," Bell said. "We are still confident in our yearlong outlook of 3 million subscribers."

In April the company said it planned to increase its subscriber base to 3 million at the end of 2000, 6 million by 2001, and 10 million by 2002.

Analysts weren't surprised by Excite's lackluster quarter.

"They were essentially in line with our estimates, but we were discouraged by the subscriber growth," said David Levy, a senior analyst at Chase H&Q. " We were aware there was a modem shortage, but we think that 300,000 (new customers) was lower than we would have expected even with the shortage."

But they were generally supportive of Excite's short-term focus of increasing its customer base at the expense of profitability.

"We think it's a sound strategy," said David Levy, a senior analyst at Chase H&Q. "They're fairly well capitalized, and they have a window of opportunity to grow the business before the competitive landscape gets more intense."

Excite reported revenue of $157.6 million for the second quarter, a 56 percent increase from the $100.6 million revenue in the same period of 1999. Yesterday, the company announced a merger of its international operations with Chello Broadband, creating Excite Chello.