Exodus may move electrons and data instead of water or gas, but the services it provides to the Internet economy are so basic and so necessary that analysts might need to value the company as if it were a utility.

by Manish Aurora of www.rationalinvesting.com [April 13, 2001]

Exodus (EXDS) is a provider of sophisticated managed data center and hosting facilities and professional services for companies with complex Internet businesses.

It has a technologically advanced global network that aims at large customers. Services constitute 40 percent of the business; the rent on data centers brings in the majority of revenues. Its major competitors are IBM, WorldCom, Global Crossing, Host Pro, and Intira.

Numbers Revenues for the fiscal year ended December 31, 2000 increased 238 percent to $818.4 million compared to $242.1 million in the prior year. This includes the absorption of GlobalCenter, purchased from Global Crossing for 108 million shares.

Exodus reported an EBITDA profit for 2000 of $45.0 million compared to an EBITDA loss of $44.7 million for the prior year. Net loss for 2000 excluding the impact of amortization of goodwill and intangible assets was $221.5 million, or $0.54 per share, compared to a net loss excluding amortization of goodwill and intangible assets of $120.9 million, or $0.36 per share, for the prior year.

Average annualized revenue per Internet Data Center (IDC) customer increased to $329,000 in the fourth quarter compared to $299,000 in the third quarter, reflecting substantial growth from both new and existing customers. In the fourth quarter, Exodus added a net of 245 IDC customers, bringing the total to approximately 4,500 customers worldwide.

Exodus opened seven new data centers, with 1.5 million gross square feet, in the fourth quarter. As of now, with the recently completed acquisition of Global Center Japan, Exodus owns and manages 42 data centers worldwide, with 5.1 million gross square feet.

Food for Exodus
Exodus is at the top of the food chain and is working to stay there. It is the market leader in complex services, with close to 10 percent of the business. Its purchase of Global Center gave it a network to put beneath its collection of servers. The firm recently bought Volera for its content delivery technology. For many years, this has historically been a business where the demand for space exceeded supply. Although demand growth has dropped off abruptly, we suspect it will resume in the second half of the year, as the world's move to the Internet de-links from the Nasdaq.

Exodus smells like a utility, acts like a utility, tastes like a utility: So it must be a utility. It is, however, like a utility in an emerging market, currently in distress and having execution risk. Otherwise, it is a large collection of assets that move electrons around the world. Its recent issue of debt, convertible at $22.76, is way under water.

The equity is priced for lower growth than we expect. Like everyone else, the company will have to stretch out its current cash hoard for a while until the market recovers, and generate cash to pay for new assets. At $6+, after many years, expected returns from the stock, and for that matter, technology stocks in general, are high.

Important notes
The methods on which this report is based are described in "Pricing A Stock."

Please also read the disclaimer.

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