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Technology Stocks : America On-Line: will it survive ...?
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To: Todd Daniels who wrote (4612)8/29/1997 10:46:00 AM
From: steve lipson   of 13594
 
Todd: Thanks for the thoughtful post.

I have often criticized bears here for misusing valuation tools in a mechanistic way, without understanding what it is they should be trying to search for, or simplistic analysis that looks at a few negatives (not hard to find) and never progresses further to try to assemble and weigh all the facts.

You cut right to the chase.

As an overall comment, I wouldn't expect to see any evidence of the economies of scale in the company's financials yet because the whole model of the hockey stick suggests that during the blade period of building infrastructure and market share you deliberately sacrifice those opportunities to create the platform for rapid growth in profits later.

It is your point-by-point analysis that is very effective at casting doubt on whether in this particular case AOL is going to find a pot of gold at the end of the rainbow (or in this case the learning curve).

As a result, I'm going to be a little more cautious from now on in my assessment of potential upside for this stock.

Going back a year to my first posting on this thread, I've never tried to make the point that AOL was a sure (or even likely) winner. Rather, for anyone watching these proceedings and trying to learn about investing, I wanted to point out that there is indeed a good speculative case to be made for AOL, and that the stock is anything but the slam dunk short so many bears proclaim.

Getting back to your points, however: If there are no significant economies of scale to be realized, that will affect the entire industry and should ultimately translate into better pricing power for surviving players. On the other hand, if there are any economies of scale hiding somewhere, then AOL is likely to get there first. So if it can start to show some on its financial statements, then you would truly see this stock propelled to a level reflecting a mania.
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