|Rumors pump up Exodus stock |
BY JOSHUA L. KWAN
The slack sails of Exodus Communications were given a strong boost by a gust of rumors this week.
The Santa Clara Web-hosting company saw its market value nearly double over the past week as investors bet on speculation that the struggling firm will get an infusion of cash or be sold, possibly to IBM or Microsoft -- two tech stalwarts with plenty of cash and financial stability.
After languishing in the $1-$2 a share range for several weeks, Exodus shares have suddenly skyrocketed 97 percent since July 31. Shares of the money-losing company were the most heavily-traded stock on the major exchanges Wednesday, rising 24 cents to $2.30.
Analysts said that the rumored deals make sense: Exodus needs cash, and it would be a smart fit for a handful of deep-pocketed firms.
``There's a lot of speculation over whether or not someone will take Exodus out,'' said analyst Alex Arnold of Adams, Harkness & Hill. ``What they've got is extremely attractive. It's the most cohesive data-center offering out there and it's going on the cheap.''
Exodus said its company policy is not to comment on rumors or speculation.
Arnold cited the company's expertise in managing data centers, its numerous data centers and its impressive list of roughly 4,000 customers, including Microsoft and Yahoo, as attractive assets.
Web-hosting companies, which manage computer servers and software applications for clients, have taken a pounding in recent months as many of their customers sank in the dot-com flood. In the midst of the Internet speculative boom, Exodus borrowed heavily and built aggressively, only to see demand falter as the dot-coms collapsed and corporate spending plummeted.
During the second quarter, Exodus burned through $426 million in cash, leaving it with $616.8 million. It reported a net loss of $583.4 million on revenue of $318.7 million for the quarter. Chief executive Ellen Hancock said in July that she hoped to raise $400 million to $500 million as a ``cushion.''
For IBM, which already has a smaller Web hosting service, an acquisition would expand its thrust into Internet services, Arnold said.
For Microsoft, an investment in Exodus is more likely than an outright acquisition, analysts said.
Microsoft's heart is in selling software, said D.A. Davidson & Co. analyst Kevin Giboney, but as it unveils its .Net strategy of delivering services over the Web for subscription fees the company will rely more heavily on Web hosters like Exodus, Giboney said.
A potential hurdle to any acquisition is the roughly $3 billion in debt that saddles Exodus, Arnold said. In addition, he said, the company still needs to make more capital investments to complete several data centers.
Telecom firms might also have an interest in buying Exodus, analysts said. A number of them have either purchased or developed Web hosting divisions to take advantage of their data transport networks. Often rumored to be interested: London-based Cable and Wireless PLC, which recently bought Digital Island, a smaller Web hosting firm in San Francisco.