Thursday, October 06, 2005

Hasta La Vista, Baby: Earthlink

Tough call on Earthlink, the internet service provider whose halcyon days are long gone.

Valuation looks great and margins are still relatively healthy, but directors at ELNK are selling blocks of shares hand over fist.

Since early August, founder Sky Dayton has sold over 3 million dollars worth of stock in the open market.

That's a no-no.

Increasing subscriber growth notwithstanding, we simply do not condone companies whose insiders refrain from drinking the party punch.

They know something.

And so do we.

We know that ELNK isn't worth the brush we use to clean our defiled, sordid toilet.

ELNK wants to redeem its battered shares by jumping into the VoIP mix.

Are you serious?

This nascent space is barely profitable and more crowded than the NYC 6 train at rush hour.

Leave it to Skype -- I mean eBay -- to squander rivals.

Who wants to compete with Meg and Pierre? I certainly don't.

Yes, ELNK needs a new source of growth as its core business - selling Internet access - shrinks.

Problem is EarthLink doesn't own any broadband connections, such as DSL.

Furthermore, experts agree that the VoIP space will probably belong to cable TV/ local phone companies whose high speed capabilities are enviable.

Lastly, with less than 500 million smackers in the bank, we don't see ELNK being able to invest in what they'll need to get the job done (like marketing).

We're intiating coverage on ELNK today with a heavy sell rating and a $7 price target.

We figure that, come December, you can wrap up your holiday gifts with those soon to be worthless ELNK stock certificates.

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