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Author: mobileme Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 4336  
Subject: EarthLink is ready to be sold short Date: 12/7/2005 9:51 PM
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If anyone is actively following this board, you may want to consider shorting this stock. Just my opinion of course... Here'

It seems undervalued considering its core business and the fact that the company is making some big investments in low ROI projects. Namely and probably in reverse order of importance:

1) Helio - The MVNO marketplace is packed with competitors and while Helio is well funded, the economics of the business are not any better than EarthLink's core business - slim for a reseller. Worse yet, Helio won't be able to lock down much, if any, exclusive content because they don't have millions of subs nor big media budgets to entice partners to come on board (Imagine Verizon spending $30M+ on media with CBS and gaining exclusive or early access to mobile versions of David Letterman, or Lost, for example). This means, a company focused on data (content sales) can't get anything that's not off the shelf. In addition, figure in competition from ESPN, Disney, Apple, Boost, Virgin, Amp'd, the real carriers and others yet to be announced, and you've got another Boingo (read investment write down) on your hands. They are yet to announce a launch date so you might assume there have been delays further ratcheting down ELNK's ROI... Finally, they are creating a new brand - I'd estimate that to be a $300M expense alone. $440M in cash and "in-kind" is not going to cut it.

2) Wi-Fi: Has the potential for better margins, however, not likely to become a significant opportunity for anyone but Helio (this investment is more likely to bring benefit to Helio in the form of VoIP calls that divert revenue from Sprint/Verizon). Will WI-FI subscribers really grow at a meaningful rate when the cable companies are bundling video and telco's are selling DSL without requiring voice?

3) Rapidly commoditized core service, movement of subscribers toward lower margin products and an inability to build a value-added business that drives up ARPU as margins collapse.

So, long or short?

MM
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