TowerStream Corporation's Time Has Come

TowerStream (TWER) provides broadband wireless communications to businesses in eight major metropolitan areas, with plans to expand to 20 cities over the next year or two. Using WiMAX technology, the company can “wire” a city with just a few antennas located on strategically chosen rooftops. New York City required only four antennas, including one on the Empire State Building.

With network installation costs just a fraction of a telephone or cable TV company’s wired network, TowerStream undercuts their competitors’ prices for a T-1 line by 50% or better. The small antennas that the company locates at the customers’ premises are installed by a DISH or DirecTV installer under contract. TowerStream normally has a customer up and working in two or three days, compared with three to six weeks for a T-1 line from the telephone company.

T-1 is a 1.5 megabit per second service. The telephone company legacy infrastructure was designed to support 45 megabits as the next step up, which is a prohibitively expensive service for most companies. TowerStream uses the flexibility of WiMAX to provide intermediate speeds, with their 8 to 10 megabit package the current hot seller.

After a city is “wired” the main expense is signing up new customers. TowerStream uses telesales to get to their customers, and recently completed a 180-seat telemarketing center. They are in the midst of expanding their 15-person sales force to 160 people. This 10X expansion in salespeople will be followed by a 10X expansion in revenues, with about a 90-day lag for training.

The company came public through a reverse merger early in 2007, and then made the jump to a NASDAQ listing after raising $40 million in a secondary offering. The stock dropped with many other emerging growth stocks through the end of 2007, and insiders began buying in November. I am the only analyst besides two of the underwriters that follows the stock. I expect them to more than double revenues in 2008 to something over $15 million, and be cash flow breakeven by the end of the year. TWER is my #1 stock pick for 2008.

Disclosure: Author has a long position in TWER

Comments

[CONOR00:]

Murphy repeats what the management tell him. If they are wrong he is wrong. So it is with twer, in the cc, 90 days sales ramp up has suddenly become 270 days with the possibility it could stretch to 360, the industry norm. So 10x number of sales people leads to 10x revenues, yes, but not until at least one year after they start assuming everything else holds. Therefore 10x sales people leads to 10x costs, and sales, it is hoped, will follow on one year later. If they dont the company has to go for more financing which will be very difficult in the current environment.

2008 Mar 21 06:39 AM