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Juno shares jump on free ISP plans

Shares of Juno Online blast 130 percent higher following several bullish reports by Wall Street analysts on the company's plan to offer a free ISP service.

Shares of Juno Online blasted 130 percent higher this morning, following bullish reports by Wall Street analysts on the company's plan to offer a free ISP service.

Juno stock was up 37.75 at 66.75. The stock reached as high as 72, surpassing its 52-week high of 33.06. Juno shares have hit a low of 8.88 during the same period.

Just yesterday, Juno said it planned to broaden its offerings to include a free advertisement-supported Internet access service and lower-cost monthly services, applying pressure on dominant online services provider America Online.

"We believe that this is a significant positive for the company and the stock, as it is the natural evolution of its cost-effective, free-email model," wrote James Preissler, an analyst at investment banking firm PaineWebber. "This now positions Juno as the leading dial-up provider behind only AOL."

Preissler added that he believes that Juno, with its current market cap of about $1.1 billion, is significantly undervalued on a "relative and fundamental basis." PaineWebber reiterated a "buy" rating on the stock while raising its 12-month price target to $120 from $60 per share.

The ISP market continues to experience upheaval as the prevailing business models keep evolving. There are now three models: the premium offerings from AOL, MSN and Excite@Home that provide support and content for a monthly fee; value-priced services such as AOL's CompuServe, Juno Web and Earthlink/Mindspring; and the no-frills services such as those offered by NetZero and AltaVista.

Another force altering the ISP landscape is the arrival of retailers, which are beginning to set up ISPs in partnership with major Internet players. In the past few months, AOL, Microsoft and Yahoo have all announced alliances with retailers to launch co-branded ISPs.

"I expect you'll see financial players [and] more retailers, including airlines, jumping in and offering Internet access," said Zia Daniell Wigder, an access analyst at research firm Jupiter Communications in New York.

Preissler noted in his report that Juno is well-positioned to turn the free ISP model into a profitable business model because of its online and offline technology, scale and network architecture.

"Juno's offline email architecture allows it to minimize the online time while still getting paid while the user is checking email offline," wrote Preissler.

The challenge, according to Preissler, is for ISPs to find ways to decrease their infrastructure and telco costs to a level below the revenues generated by advertising and e-commerce transactions.

Although the industry average is about 10 users per port, the entry point to a network, Preissler believes Juno could succeed in supporting 20 users per port. Juno currently pays about $5 to its telco partners for connection, but because of improving efficiencies in managing ports, as well as falling rates, Preissler thinks Juno could wind up paying about $2 per port connection.

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