January 26, 1998

Taking Stock: A Smart Bet On @Home

Whether it will succeed is speculative, but the high-speed Internet access provider has the most potential of all ISPs

By William Schaff

s anyone else frustrated by the slow evolution of Internet access speeds? I've migrated from 14.4 Kbps to 28.8 Kbps to 56 Kbps to ISDN. Still too slow, you say? What else do we have on the shelf?

You might be surprised to find that the best answer may lie within the cable system. A few major cable companies got together in 1997 and spun off a high-speed access provider called @Home that uses cable-modem technology. @Home, in Redwood City, Calif., provides cable-modem access service up to 10 Mbps (downstream), or roughly six times faster than a standard T1 line and similar to most LAN speeds. @Home is doing it via the hybrid fiber coaxial infrastructure of eight of the 12 largest cable companies in North America, including Tele-Communications, Cablevision, Comcast, and Intermedia Partners.

Using an ATM backbone, @Home offers its own end-to-end distributed network architecture, similar to a parallel Internet. The network consists of four network access points, 19 regional data centers, and high-speed delivery to cable head-ends. For users, the advantage of the cable system, besides the higher speed, is that it is always "on" and requires no dial-up. Customer support is provided by the local cable franchise.

What isn't well known is that @Home is more than a vendor that offers a fast way to play games on the Internet. It also offers true business functionality through its @Media and @Work divisions. @Media offers advertising, E-commerce, and extensive content. Content partners include The Associated Press, USA Today, CN N Interactive, Red Herring magazine, and Bloomberg L.P.

Also, @Work offers dedicated, fully managed virtual private networks, while @Work Remote offers a secure high-speed corporate LAN for telecommuters. To improve its usefulness to businesses, @Work agreed with Netscape to offer business-to-business E-commerce solutions, and to co-develop a branded version of @Work to support Windows NT. The company's ultimate goal is to have revenue from @Work and @Media comprise up to 30% and 20%, respectively, of total annual revenue.

At of the end of 1997, @Home served 50,000 cable modem subscribers in North America out of 4.5 million homes that already have two-way upgraded cable lines. @Home has launched in 21 cities in the United States and Canada. Some analysts project 350,000 @Home subscribers by year's end from a base of 50 million homes that have cable services. Given that the eight cable-affiliate agreements represent almost half of all homes serviced by cable in North America, a penetration rate of less than 1% seems pretty reasonable.

Assuming the average monthly bill for unlimited usage is still $39.95 a month, and roughly one-third of the revenue collected is paid to @Home, the company's service revenue alone will be at a run rate of $56 million by year's end. The company recently reported revenue of $3.7 million for the fourth quarter of 1997, up 95% over the third quarter. Revenue for the full year was $7.4 million, up more than tenfold from $700,000 in 1996. Though operating earnings are still in the red, the company is striving to reach profitability by the end of 1999. Capital expenditures in 1997 were $26.5 million. In 1998, @Home expects net operating losses to be about equal to cash expenses plus capital expenditures. But with $120 million in cash on its balance sheet, @Home should get through 1999 comfortably without having to access the equity markets for new funding.

Let me be very clear: An investment in @Home is very speculative at this stage, at these prices. But I also believe the company has the best product and the best growth potential of all Internet service providers today. With a little mad money, I'm placing my bet on @Home along with most of the top cable companies.

William Schaff is chief investment officer at Bay Isle Financial Corp. in San Francisco, which manages the InformationWeek 100 Stock Index. You can reach him at bschaff@bayisle.com .

Get the current stock price of:

Back to News In Review

Send Us Your Feedback

Top of the Page