CS First Boston analyst Alan Braverman initiated coverage of @Home with a "buy" rating and set an 18-month price target of $28.50, noting that the market has the potential to generate $3 billion in revenue by 2001, with an additional $3 billion in advertising and a huge opportunity in e-commerce.
The company's stock rose 3-1/2 points to 22-1/8, up from yesterday's close of 18-5/8, with nearly 2 million shares trading hands.
Braverman said the biggest problem with the Internet is speed, and that @Home provides a fast alternative to telephone-based connections. He also pointed out that the company's potential for growth is exponential: He expects @Home to provide service to more than 4.2 million users by the year 2001.
That is a huge jump from the 12,000 customers it currently serves. The biggest obstacle in @Home's way is the cable upgrade needed to install the service. But, the service provider has exclusive distribution to 44 million homes through its relationship with seven cable operators including TCI, Cox, and Comcast.
"They do not have to build or significantly maintain the network," said Braverman, noting that @Home just piggybacks on the cable companies' connection.
Because they are not building the network, they are relying somewhat on the cable companies. "The gating factor in part is the cable upgrade," he said.
Some critics have questioned the reliability of cable access compared to the "traditional" phone line connection, but the cable upgrades should enhance reliability from a systems perspective, said Braverman, noting that cable companies are "starting to get the picture on the value of reliability."
The current turnover rate for ISPs is 65 to 80 percent, but Braverman said he expects @Home's churn to be only 15 percent. "The service is better, faster, and arguably cheaper...It's about 300 times faster for $15 a month more. Why would you go anywhere else?"