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Technology Stocks : America On-Line: will it survive ...?
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To: steve lipson who wrote (4625)8/29/1997 1:29:00 PM
From: Todd Daniels   of 13594
 
>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.

But the EIGHT YEAR table shows 50%+ margins earlier, and detirorating
ones later. The growth in that eight years is a hockey stick. You say
that it hasn't even begun. In fact, the recent evidence is that a
period of plateau has been entered -- at best slower growth rates.

Furthermore, AOL has expanded its network to handle peak load of
$19.95 unlimited customers during six hours a day. The rest of the
time the infrastructure is fallow. The economics are are bad as an
airline being sold out on 25% of flights with discount passengers
and flying almost empty the rest of the time.

AOL Enterprise, lunched with fanfare ten months ago to pursue business
markets has essentially been disbanded, its president disappeared.

>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.

The economies are in 24 hours usage, not of scale per se. And the
financial leverage is in depreciation which generates cash flow.
But that only accrues to the extent that physical plant, especially
the lines, are owned. AOL leases. The above are why the telcos (and
cable) are in much better shape. As the local/LD battles are joined,
bundling of access will be de-riguer; and will ride on the $3b per
year of advertising done by the telcos.
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