This is the single best summary of GBLX i've read (worth posting now that we're getting some attention):|
HOW TO BUY THE WHOLE INTERNET WITH JUST ONE STOCK
By Porter Stansberry
In the Information Age the data network is dominant.
The amount of data traveling on networks around the world is growing by 16-fold per year. As more and more people around the world get online, the demand for capacity-for bandwidth-will continue to soar. Companies positioned to supply this bandwidth will dominate.
Let's think about it from an e-commerce point of view. For Amazon.com to sell books this Christmas, they've got to be able to handle a flood of data traffic. They cannot afford for their website to be down, even for a minute. And that goes for every mission critical application on the web...and every email...and as voice becomes integrated with data networks, every phone call, every telephone message...
Whoever owns the best global network will become the most valuable company in the world over the next five years. This company will literally own the real estate of cyberspace. Luckily for us, there is one company that:
1. Owns 1.4 million miles of the most sophisticated fiber optic cable, connecting 170 major cities in 24 countries.
2. Owns the world's most advanced fleet of cable laying and maintenance vessels.
3. Offers every imaginable web and data networking service: voice, web hosting, private line, ISP network support and video conferencing?all at the lowest wholesale prices.
4. Is a partner in data networks spanning across all of Asia along with Softbank and Microsoft.
5. Is building the fastest -server farms- around the world to provide fully redundant web hosting on each leg of its global network.
6. Owns a $1 billion Internet protocol fiber network in North America, connecting 120 of the top markets. Incidentally, this was the only major network that didn?t experience any interruption in service during Hurricane Floyd.
7. Is able to double its network capacity each year. (Current capacity is 2.5 gigabytes per second?but that capacity will double in early 2000 to over 5 gigabytes per second.)
8. Grew core revenue from $100 million in 1H ?98 to over $350 million in 1H ?99.
9. Hosts the largest and mostly densely trafficked Internet sites?including Yahoo!
But, all of these qualities alone are not enough to earn the stock a buy rating in my book.
In the Information Age you have to accept that people matter more than installed capacity. It is truly an era of mind over matter.
All of the above qualities could be copied for around $5 billion - but with the right leadership at the helm, the company I describe above will never have much competition.
It will continue to lower its prices, staying on the leading edge of the pricing curve and forcing any potential competitors to think twice before investing in a global network.
Who would be the right leader for such a tough job?
How about the entrepreneur who arranged the original junk bond funding for MCI's founder, Bill McGowan, back in 1981 -- when competing with Ma Bell must have seemed like an insane pipe dream? Or, what about the entrepreneur who?in just 20 months?built the first privately financed undersea fiber optic cable between the U.S. and Europe and earned a $15 million profit doing it? Or how about a guy who really knows catastrophic change?like someone who was born into vast wealth, then, at age 16, watched his family go bankrupt and saw the stress kill his father via a massive heart attack? Or, maybe you'd
rather gamble with a sure winner-like the guy who made a billion dollars faster than anyone else in history?
Well, believe it or not, all of those qualifications come with just one man-Gary Winnick. And, it's his company?Global Crossing (OTC: GBLX, $33) -- that I describe above. When you invest in Global Crossing, you're buying the most technologically and geographically advanced data network available, plus you?re getting arguably the best CEO in the history of telecommunications.
Wall Street is missing the point
Remember, my investment strategy is based on finding companies using new technologies to vastly reduce consumer prices, in markets that mainstream investors don't understand.
It's easy to see how Global Crossing is using new technology to lower prices. Their fiber and dense wave multiplexing systems are capable of doubling their network capacity each year. That amount of bandwidth growth will rapidly drive down prices. But our real opportunity lies in taking advantage of Wall Street's misunderstanding.
The Street thinks that Global Crossing is a phone company.
Wall Street assumes that as voice communications become much cheaper, companies like Global Crossing will suffer falling revenues?much like I have been predicting AT&T will. This confusion saw the share price of Global Crossing fall in half. But the sellers are absolutely wrong.
In the first place, by building the crucial links between continents, Global Crossing will own the bottlenecks of global data networking-the crucial links in the World Wide Web. Global Crossing has bought the Park Avenue of cyberspace?real estate that will always command a premium.
And even bigger misunderstanding relates directly to our secret of lower prices. Wall Street still believes that lower prices will mean lower revenues. And it does-for companies like AT&T that don't have the right technology in place. That's why AT&T's consumer long distance revenue is now down 7% for the year.
But Global Crossing is different-it's a company built to succeed in an environment of rapidly falling prices. For example, look at Intel. Here's a company that makes lots of money as chips become cheaper because the lower prices cause demand to soar.
As long as Intel remains the innovation leader in microprocessors, they are able to garner most of the profits in that business. I call the leading company in sectors where prices fall dramatically, the Pinnacle Provider. You will find that the pinnacle provider typically garners 80% of the profits in their industry by being the technological innovator and the price leader. And that?s what Global Crossing is?the pinnacle provider for global data networking.
To give you an example of how Global Crossing will grow revenues even as prices for bandwidth plummet, let's look at one of their newest businesses?web hosting.
Over the next year Global Crossing will construct ten new multi-million dollar -data centers,- in crucial connectivity points across its global network. These are the -data farms- that house the world's busiest and most important websites. Web hosting is expected to grow from a $2 billion dollar a year industry this year to a $14.6 billion industry by 2003 -- and I think those numbers are very conservative.
Right now Wall Street thinks that the server farm business is about owning good computer servers-like Exodus Communications (OTC: EXDS) does. So Wall Street's brain dead Internet investors have bid the shares of Exodus up to ridiculous levels, from around $5 to over $80 per share this year. But they're making a crucial conceptual error. Good web hosting isn't about web servers. Good web hosting is about maintaining very vast, guaranteed connections with your users.
Exodus Communications doesn't even own a data network-it rents space from...that's right, Global Crossing. So I ask you: who's going to be able to offer the lower price for top quality web hosting-Exodus or Exodus's network provider?
I'm buying Global Crossing because I believe it's going to be the price and quality leader in global data communications for the next twenty-five years-a period of time that will see a complete revolution in communications. And because of the promise inherent in such an opportunity, I'm going to use a wide, 50% trailing-stop loss on this investment
End of piece By Porter Stansberry
By Robert (Paytient -- on the Fools board)
I posted this on another board in response to a question as to why someone should buy GBLX over another telecom like WCOM. For those that are new here it may answer a few questions on why we are so upbeat on the future for GBLX. For the old timers it may be of some use, especailly the discussions on the venture portfolio GBLX owns.
I point some things out that perhaps others can use to continue their DD on GBLX. Having said that, please tear this apart, I would like to see where my flaws in thinking are. I't took some time to write and there may be some factual errors in it, so please be kind and ask if you don't understand or agree with my assumptions, I will be happy to attempt to calify and elaborate.
Here is what I think the revenue stream is going to look like over the next few years for GBLX Notice the decline in rates as the -bandwidth glut- brings prices down. This is the heart and soul of the GBLX business plan.
1. How will it compete with WCOM? WCOM is also building undersea optical fiber but has more terrestrial coverage. How do the business models compare in your opinion?
What you are getting in GBLX is a pure play in the fastest growing segments of WCOM. WCOM is split about in half between fast growth and slow growing segments. You are also getting the fastest growing segments of WCOM at about a third of the valuation.
The basic business model of GBLX thrives off of the decreasing rate increases that additional market capacity will bring. For every 50% decrease in rates there is a corresponding 175% increase in demand. This is the heart of the Global Crossing business model. Why is this significant? Because through the use of DWDM GBLX can increase bandwidth. To give you an example, the recent Pacific Crossing light up is running at 80 Gigabits, but can be increased to a half terabit with modest modifications.
No one out there is really LAYING a lot of cable at this time. There is a lot of talk and marketing hype, but very small amounts of cable are actually physically going in the oceans.
On the west coast, consortiums of carriers are unable to land anywhere on the west coast of America because of anti trust issues. GBLX has a two year head start here.
Let me review some of the network segments and discuss where each is and when it plans to be done; followed up by how networks are valued and then supply and example with the recent Racal purchase. I hope this will answer your questions. If you need to see what these abbreviations mean, go out to the GBLX home page and find the interactive network map.
AC1 is in service now and has already been upgraded through DWDM for huge revenue gains on the existing network.
AC2 will be completed my March of 2000, most of it is done now.
Global Access in Japan is in service now and the Tokyo loop should be done by 6/2000.
Mid Atlantic was just turned on and the full ring should be ready by 6/2000.
Pan American initital segment should be completed by 3/2000 and the ring done by 6/2000.
Pacific Crossing is turned on now and the full ring should be operational by 7/2000.
Pan European has been turned on now in December of 1999
The South American network ( GBLX doing build out) for dark capacity will be competed in 3/2001
Global Crossing has a solid history of bringing these networks online 3 to 6 months early. They are a year to two ahead of anyone else in the market.
A network is valued and measured by not just points on the network, but by the combinations and permutations of the network. This is a very important point. A combination is point A to point B, a permutation is actually two connections segments point A to point B and then back again.
Now for an example of how this synergy translates into an advantage for GBLX. GBLX paid 1.6 billion, or two times revenue for Racal recently. With the purchase they got 2000 points of presence, 70% of which were within 5km of 70% of UK businesses. Up until that time GBLX was paying 750 million in landing fees in the UK. In two years the savings from not paying those fees pays for Racal. Pretty slick hugh? If WCOM had done that it would have taken them 5 to 7 years to recover their cost because of the handoffs WCOM has to do to do the same thing. This is a very big difference in their business models.
Let me continue?
GBLX has a venture portfolio worth somewhere around 4 to 5 billion dollars that are hidden inside the company. What do they have?
1. Corvia ? multi terabit switching
2. Narus ? a network data facilitator
3. Northpoint a data only CLEC
4. Pluris ? IP switch routers
5. Sonus ? carrier solutions and convergence of packet networks. ( where we are heading)
GLOBAL CENTERS ? housing server farms and data storage coming from recent Frontier purchase. Here is a great formula gang: GBLX Global Centers will be building out about 1.8 million square feet for GlobalCenter at a cost of about $300 a sq ft. They will then lease out the same square footage at $900 per square foot for a net annual income return of about 300%. My kinda guys. Again, synergies that a WCOM could simply not pull off.
Lets look closer at GlobalCenters and a comp, Exodus, which is selling at 90 times trailing sales. BTW, Exodus has no network attached, they have to lease. If you use just 50% of the current valuation of Exodus to value Global Centers; two years down the road you get a valuation of GlobalCenter then that is the same as all of GBLX now!
And two cherries on the hot fudge Sunday. Next year GBLX will spin off both GlobalCenters and the Asia Crossing business.
End of piece By Robert