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Monday, July 17, 2006

Widely Traded 48 Hour Clock: Level 3 Loves YouTube

Stocks: (LVLT)

24/7 Wall St. has begun coverage of the 36 most widely traded stocks, eighteen each from the NYSE and the NASDAQ. Most of these stocks trade over 50 million shares a week. This new feature will highlight each of the 36 stocks at least every 48 hours giving investors fresh infomation and perspective on the companies whose shares are most likely to move the broader markets.

Level 3 still posts one of the largest short positions in the history of Wall Street. The figure is routinely over 100 million shares.

But, after a run when the stock was rarely much above $3 that went from January 2005 to October 2005, the stock moved up to $6 a little over two months ago.

Level 3's performance improved last quarter, and the company redeemed $460 million in debt in June. After two years of falling revenue, the March 06 quarter showed a nice tick up in revenue. The topline hit $1.267 billion. None of the previous three quarters rose above the $1 billion revenue mark. Operating income was still negative at $58 million but the number continues to improve.

Level 3 was one of the great bandwidth plays of the lates 1990s and peaked at well over $100 in 2000. But, the oversupply of pipes to deliver internet traffic nearly destroyed the company as bandwidth costs plummeted. As recently as 2005, Level 3's rate to customers for bandwidth was still dropping close to 20% year over previous year.

Increased broadband traffic has in many weight rescued Level 3, but video traffic over the Internet could make the company a star.

According to several Wall Street analyst reports, a video file requires about 450% of the bandwidth that an audio file does to transfer from a server to a consumer. With high definition video, the figure goes above 2000%. Up until recently, no one cared because the amount of video on the internet was still fairly small.

All that is changing. YouTube, the video hosting and sharing site, says that it is now getting 100 million video views a day and 65,000 new video submitted. In addition, several other large sites have huge video audiences. According to the GoogleWatch section of EWeek, sites like Yahoo! video and MySpace are also feeding video to huge audiences. And, commercial television sites like CNN, MSNBC and ABC are adding more video each day.

Video streaming and downloading on the internet will continue to increase. If Level 3 gets to the level where what it charges for bandwidth simply stabilizes, it will add tremendously to the company's revenue and bottom line. If the cost of bandwidth for Level 3's customers begins to rise, the stock could very well go above the $6 mark.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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