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THE DAY AHEAD: Excite@Home trades profits for marketing, it&#039s just so 1999

Excite@Home (Nasdaq: ATHM) looked like it had everything figured out. The company straightened out its relationship with AT&T Corp. (NYSE: T) and looked like a contender. And then the broadband portal dropped its latest bomb.

The company wants to lose money to market aggressively and expand internationally. How 1999 is that? Just when profits begin to matter to investors, Excite@Home not only misses estimates with a slight loss, but then forecasts hefty losses for 2000. Once a Net company posts a profit, it's hard to go back to that spend-heavily-to-grow mode.



Excite@Home's profit-marketing swap: Good move?



For starters, Internet companies can't afford to miss estimates. When your valuation is based on future profits and revenue, you can't overlook little items like analysts' projections, which are low-balled anyway.

Excite@Home's earnings release (aside from the earnings and revenue miss) touted a bunch of solid metrics -- until you got to the financial outlook, which nullified all the feel-good statistics.

The company plans on losing 25 cents to 30 cents a share in 2000, excluding the usual amortization costs that Wall Street tends to overlook. First Call consensus called for a profit of 10 cents a share in 2000.

For perspective, consider this: Excite@Home reported a 1999 loss of 4 cents a share, excluding goodwill charges.

The company cited international expansion and subscriber growth as the primary reasons for 2000 losses. Excite@Home said it hopes to have 3 million residential broadband subscribers by the end of 2000, 6 million subscribers by the end of 2001 and 10 million subscribers by the end of 2002. Those goals will take a lot of marketing.

Excite@Home added that it hopes to have $2 billion in revenue by 2002, and "intends to achieve long-term profitability." Don't hold your breath.

We already know what Excite@Home fans -- not to mention analysts hoping to rake in underwriting fees from potential spin-offs such as Excite Japan -- are going to say. Excite@Home is making a good move in the long run. Besides, Excite@Home now has Ma Bell on its side.

Maybe Excite@Home is making a good move, but it shouldn't sacrifice current financials. Profitable Net companies will have certain privileges such as nice market caps. Excite@Home is out of the club.

Instead of allowing Excite@Home to post losses for the year in the name of expansion, maybe shareholders should question why the company overpaid for Bluemountainarts.com. That acquisition was used only to hide weak growth for Excite@Home's narrowband portal.

Perhaps, investors should ask why Excite@Home suddenly got this international expansion bug. Yahoo! (Nasdaq: YHOO) has expanded abroad without screwing up its financials. Lycos (Nasdaq: LCOS) is also a major player. Oh yeah, and those folks at America Online (NYSE: AOL) are also interested in the action overseas. Yahoo, Lycos and AOL also report profits.

Investors should be asking a lot of questions about Excite@Home. Maybe they will -- in between trades.

Apple posts another great quarter ... ho hum

Now that Apple (Nasdaq: AAPL) is habitually topping estimates, its earnings conference calls are getting increasingly boring. Yes, we know shareholders are making money. And, of course we know Apple issued a rare stock split.

But we really wish CFO Fred Anderson would talk more shop on the calls. Anderson basically falls back to the "we don't preannounce products" or "we don't break that out" lines.

Here's what we'd really like to know:

    1. What's the beyond the box strategy here? We know the partnership with EarthLink (Nasdaq: ELNK) is going well, but how about some figures. Anderson only said it's doing well. He did see good margins ahead and mentioned EarthLink is a part of that. Hmmm.

    2. What about those pesky Net appliances. Gateway (NYSE: GTW) and AOL are talking Net appliances. Apple should be able to cook something up that's better. It's not like the company doesn't know how to make consumer-friendly products. Is it time for the Newton to return? Sure, Newton was ahead of its time, but it was pretty neat.

    3. What about those other cool Net assets Apple has? We're talking QuickTime here. Nice technology guys, how about a spin-off? How about just a download figure? We know, we know ... competitive reasons.

Programming note

There won't be a Day Ahead column because there isn't a day ahead -- the market is closed Friday. Have a good holiday.


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