Thursday, January 8, 1998

MindSpring Enterprises Inc.
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Phone: 404-815-0770
Website: http://www.mindspring.com
Price (1/7/98): $28 1/2

HOW DID IT DOUBLE?

MindSpring has sprung. While the company has been providing Internet access to its growing customer base, it has also been providing huge capital gains to its shareholders.

In a niche where most figured that only sponsor savvy, content-heavy America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> would flourish, MindSpring is expected to report a profit for the recently concluded December quarter.

The pessimism has worked in MindSpring's favor. With many Internet service providers left for dead, the company was able to acquire fading peers for a pittance. That, in turn, has allowed MindSpring certain economies of scale.

BUSINESS DESCRIPTION

As of September, Atlanta-based MindSpring provided Internet access to 224,000 subscribers in 250 major metropolitan areas nationwide. The company also provides Web hosting services and provides domain address registration. (So, if you want to set up www.ilovedailydouble.com, contact MindSpring).

FINANCIAL FACTS

Income Statement
12-month sales: $43.9 million
12-month income: ($6.9 million)
12-month EPS: ($0.93)
Profit Margin: N/A
Market Cap: $213.8 million

Balance Sheet
Cash: $7.3 million
Current Assets: $10.2 million
Current Liabilities: $12.0 million
Long-term Debt: $4.9 million

Ratios
Price-to-earnings: N/A
Price-to-sales: 4.9

HOW COULD YOU HAVE FOUND THIS DOUBLE?

Last year, when a month of Internet access would run you about four shares of MindSpring, investors began to see a company on the verge of profitability. Granted, the company would report losses for each of the first three quarters of 1997, but not only were they narrowing -- the company had finally become cash flow positive from operations.

As a larger company MindSpring was able to obtain operating efficiencies within its network. The costs of recurring revenue -- the expenses generated in maintaining its existing customer base online -- had fallen from 49% to 41% of the total dial-up accounts revenue.

The growing MindSpring also became a more attractive podium for online merchants, as companies like Barnes and Noble and PC Flowers soon signed up to be part of MindSpring's cybermall.

Along the way, software companies like MySoftware and Cybermedia have teamed up with MindSpring in cross-marketing promotions that now find the Internet service provider's software bundled with popular titles.

WHERE TO FROM HERE?

An investor who saw MindSpring as a headstrong industry consolidator may have been able to foresee the good tidings ahead. The analysts apparently didn't. Current projections that have the company earning $0.77 per share in this year were unthinkable back in March when the stock was at $6 a share. The four pennies a share in earnings expected for the last quarter of 1997 are apparently a sign of additional profits to come.

Just last month, after shares of the company had more than quadrupled, Furman Selz placed several Internet provider stocks, MindSpring included, on its recommended list.

A cynic may lament over how a company can go from being unloved to being a Wall Street darling with a price tag four times higher, but MindSpring, ready to report its first ever quarterly profit in a few weeks, was not a "no-brainer."

The company had to prove itself every step of the way and is now a different company as well. The fastest growing segment for the company is business services, which now make up 15% of total sales. By catering to its 6500 Web hosting customers, the company has recently enhanced its offerings to include new services like Web page design.

With less buzzard pickings to acquire and a slowdown in AOL defectors, revenue growth should slow from the stellar 300% rise over the first nine months of 1997, but few will argue the fact that the Internet is going to continue to be a growth industry for quite some time -- and MindSpring should be a significant player in the process.

-Rick Aristotle Munarriz
([email protected])

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