|
Laying cable for fun and profit...
Get hard wired for an easy 203% gain!
by Christian DeHaemer
It's been a couple of years now since the electronic elite began promising the nirvana of broadband in the house. Bill Gates wired his house like a chicken coup, with talking toasters, streaming audio, and pop-up video conferencing in every room. He labeled it the future and declared that it was only a matter of time until you, too, could have such things.
We heard stories about video games on demand, never having to return a movie, and refrigerators that could order more milk. Let's not forget the Internet as it was meant to be, with new pages loading as if you were flipping through a phone book.
I don't know about you, but in my house, we still buy the milk from the corner, don't talk to our toaster unless we've had a really bad day, and suffer through the worldwide wait.
I'd walk a last mile for a broadband network
The extreme data functions described above are a reality. The problem lies in acquiring them. As consumers, we are held hostage by the two industries that epitomize the word dinosaur — cable and telephone.
These guys think "sometime between noon and four" is an appointment. They can't even determine who is getting their product for free. Let's face it, these companies reek of the bloated bureaucratic Old Economy they represent. They simply are not the people you think of calling when you want to wire your dwelling for the bleeding edge.
But who do you call? There is no "fully wired home" section in my phone book. Clearly, this is a market void waiting to be filled. And why I was so happy to discover the following company. Judging by the number of deals this company has signed in the past two months, the new home market was happy to discover them as well. Please, read on.
Who you gonna call?
ClearWorks.Net, Inc. (CLWK-OTC BB) is a provider of voice, data and video services for commercial and residential customers. The company is based in Houston, Texas, and plans to become an industry leader in integrated voice data and video solutions.
They might meet that goal because ClearWorks.net is riding the convergence wave of telephone, cable TV, satellite TV, telecommunications and Internet technology — and a major housing boom.
ClearWorks incorporated a little over a year ago as a company that wired voice, data, and video for business. It has since captured a major opportunity in the new home market. And now delivers "Bundled Digital Services" to residential consumers directly through a proprietary service package.
The company's own R&D has developed a technology that can utilize a high speed Internet connection for the delivery of all services. It now possesses a wide array of digital solutions, which it began deploying to homes in the third quarter of 1999. The ramp up has just started.
The wired trinity
ClearWorks.Net consists of three wholly owned subsidiaries, ClearWorks Structured Wiring Services, ClearWorks Communications, and ClearWorks Integration Services.
Structured Wiring focuses on schools and school districts, companies, and individual homeowners who want fiber optics or copper-based solutions. Revenue is generated though time and materials billings, consulting contracts, service and support contracts, as well as hardware and software sales.
ClearWorks Integration Services provides IT staffing and consulting to build Local Area Networks, Wide Area Networks and other multi-platform supports like you probably have in your office.
The big mover of this company is the third segment — ClearWorks Communications. It focuses on the delivery of integrated voice, data, and video services to the residential marketplace.
 America is one big suburb
It is estimated that 1.7 million homes were built in the U.S. last year. I don't know if its true where you live, but around here houses are going up faster than mushrooms after a warm rain. Demographic information suggests that the fastest growth in new houses continues to be in the Southwest — where ClearWorks is located.
According to the Gartner Group, a third of the U.S. workforce will be working from home at least one day a week by 2003. This isn't even considering the desire for home shopping, entertainment, communications, and research.
ClearWorks has the business ties in place to meet this market demand. The company is a value-added reseller of hardware and software. It buys from the likes of Compaq, Computer Associates, Network Associates, IBM, Hewlett Packard, Alctel, and 3Com. And just like your auto mechanic, it jacks up the price and takes a cut. ClearWorks also uses technology from Cisco, Netscape, and General Instruments.
The fact that it isn't a manufacturer means that it avoids the expense of carrying inventory and can adapt to an ever-changing environment.
Put fiber in your portfolio
The upshot is that ClearWorks can build you a home based LAN, bringing multiple telephone jacks, cable hookups, and standard outlets to each room.
This means that one multifunctional outlet provides the juice and data feed for all of your electronic needs including: telephone, television, stereo, VCR, DVD, modem/Internet, computer, fax machine, cable access, home theater, satellite dish, security system, and home automation.
And it's all plug and play. That means you simply insert what you need, from anywhere in your home. Its time to throw away that tangled mass of wires in your home office.
But that's not all...you also get:
Digital television channels with custom designed video feeds and HDTV based on the nature of the communities. Retirement homes get six channels of Matlock, family communities allow control of the porn.
You've heard the hype of MP3. In a ClearWorks world you get multiple channels of digital music — all music all the time, commercial free and digitally clear audio.
The pay-per-view movies and video games means that you'll never have to pay late fees at Blockbuster again. Digital video on demand — this is stuff I was telling you about a few months ago when I recommended you buy Tivo. Remember 50% in a month? It allows you to pause live TV, record months in advance with one button and surf though categories of TV listings simply and easily. It's sort of a high tech VCR and TV Guide combined.
The high-speed Internet access is 2000 times faster than a 56k modem. And there is also the ability for a community Intranet. Customers will get the latest news, special events, crime watch, or whatever information is relevant to their development. You get the convience of being nagged by your homeowners association by e-mail.
The company
ClearWorks.net last reported a 345% increase in Revenues for 3rd Quarter in November, 1999 — year over year. The company also reported a 276% increase in revenues for the nine months ending September 30, 1999 compared to the same period last year. That's the kind of growth that gets your attention.
And, as an added bonus, they are still losing money, which makes it the perfect stock to own in today's economy. No pesky p/e ratios to worry about!
Understanding this company is easy. The bet is that ClearWorks.Net will continue to add subscribers at an alarming rate before competition, lawsuits, a sea-change in technology, or some other corporate killer sends it back to the bush leagues.
Judging by the string of press releases put out over the past two months, I believe this is a fairly safe bet. Traditionally, Internet Service Providers (ISP) and cable companies have been valued at US$5,000-8,000 per customer. However, because ClearWorks is a cable/digital/ TV/home security/internet broadband/home networking company, you can make the argument that they should be valued at US$10,000 per subscriber.
The deals — Streaming profits
ClearWorks has announced three deals since the first of the year totaling more than US$370 million in revenue and US$185 million in gross profit over the life of these deals. What really gets me giddy is that these massive revenue streams come from signing only 9,700 customers.
Granted, the picture is not as rosy as it appears at first glance. The deals are structured so that the bulk of the revenues are generated after 2003. However, the company can borrow against this revenue stream and receive the required capital for expansion. But I'm getting ahead of myself. Let me tell you about the most recent deal so you understand the business model.
Accelerating profits
ClearWorks.net signed a US$120 million deal for the 3,700 single-family homes in the Teravista planed community near Austin. Furthermore, Teravista has three multifamily sites, a 196-acre commercial campus and 25 acres of retail property.
The projected revenues for the life of the project are US$120 million. Gross profit is projected to be US$63 million. Construction will begin in June 2000 and is expected to be completed within five years. ClearWorks.net will provide structured wiring for the homes as they are built, with initial revenues of US$1,500 per home.
In the first quarter of 2001, the Company expects to receive US$137,000 in additional revenues from its Bundled Digital ServicesSM to the Teravista community. This is expected to increase to US$273,000 in revenues during the second quarter of 2001 and to US$1.4 million in revenues for the full year 2001, reaching US$2.5 million in 2002. Starting in 2005, ClearWorks.net expects revenues from this project to be approximately US$5.5 million per year until 2026.
The two other deals were structured much the same way. The first is a US$50 million deal in the Lakes of Eldridge planned community in Houston with 1,400 single family homes
Two days previous to this deal, Clearworks.net secured a US$200 million revenue project to deliver their Bundled Digital Services to over 4,000 single family homes and 2,000 multi-family units in the Avery Ranch community of Austin, Texas.
What value this?
Given a US$10,000 per subscriber multiple, the last two months of deals would give you 11,100 subscribers and a market cap of US$111 million. Today, ClearWorks trades at a market cap of US$300 million. That's because this company isn't about where it is today, but where it will be three to five years from now.
ClearWorks.net has announced a number of things that suggest that the past two months are no fluke.
Expansion
ClearWorks.net is on a path of rapid expansion. They recently inked a deal that allows interconnection to the Public Switched Telephone Network in thirteen states. The agreement provides interconnection capabilities with Illinois Bell Telephone Company, Indiana Bell Telephone Company, Michigan Bell Telephone Company, Nevada Bell Telephone Company, Ohio Bell Telephone Company, Pacific Bell Telephone Company, Southern New England Telephone Company, Southwestern Bell Telephone Company and/or Wisconsin Bell, Inc.
This lays the groundwork for expansion into those territories. Furthermore, ClearWorks.net recently announced that it has expanded its operations into the Phoenix market. It has offices in San Antonio, Austin, and Las Vegas. With the expansion into Phoenix, the company now covers five of the top 10 fastest growing residential markets in the nation.
ClearWorks currently works with several regional and national builders including Centec, Pulte, Royce, Kaufman and Broad, Ryland, D.R. Horton, Village Builders, David Power, Legend, Hammond, and Trendmaker.
But wait, there's more — A Nasdaq listing?
ClearWorks.net has recently signed a top-tier auditing firm, KPMG, in an effort to positions itself for long-term growth and a Nasdaq SmallCap Market listing. Furthermore, the company hired an investor relations company to put out the good word and maximize shareholder value.
So what would you pay for a rapidly expanding start-up, with fat margins in a sweet market. If you bought it today at US$12 you would be paying three times the going rate for this type of broadband supplier. However, this company is all about growth.
It is reasonable to assume that in a year — given the market demand and the current growth rate — the company will have 50,000 subscribers — this would give you a market cap of US$500 million or 44% above its current value.
However, due to its rapid expansion into five of the fastest growing regions, and because the market is a forward looking beast, you can make the argument that ClearWorks will trade based on projected 2001 numbers - say 100,000 subscribers and a high triple digit growth rate. That would give you a billion-dollar market cap — or a 203% gain over current levels.
With a Nasdaq listing and some analyst coverage, I believe this company could easily trade at those multiples. If it gets a little tailwind and executes well, the numbers could be much higher. This is the only U.S. based company that I know of, which is focused on this market and they have zero analyst coverage.
Buy ClearWorks.net below US$14 today, with a one-year price target of US$40. Contact: 2450 Fondren, Suite 200 Houston, TX 77063, Phone: (713) 334-2595, Fax: (713) 334-6565, www.ClearWorks.net.
| FINANCIAL HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED 09/30/99 AND 1998 |
| |
1999 |
1998 |
| |
3 MOS. |
9 MOS |
3 MOS. |
9 MOS |
| REVENUES |
$1,027,000 |
$2,052,000 |
$231,000 |
$546,000 |
| GROSS PROFIT |
252,000 |
638,000 |
45,000 |
105,000 |
| NET LOSS |
-457,000 |
-757,000 |
-55,000 |
-61,000 |
| Earnings (loss) per share |
| Basic |
($0.03) |
($0.05) |
($0.01) |
($0.01) |
| Diluted |
($0.03) |
($0.04) |
($0.01) |
($0.01) |
| |
|
|
|
|
| SHARE INFORMATION |
| CURRENT PRICE |
$13 |
| SHARES OUTSTANDING |
16,958,159 |
| FLOAT |
9,707,424 |
| AVG. DAILY VOLUME |
518,360 |
| Incorporated |
Deleware, Oct. 1,1997 |
In addition to his duties at Taipan, Chris DeHaemer is the editor of The Hammer.
|
