steve, I see a "coming freefall" for several reasons...
1) As many here has pointed out, AOL has no earning. Granted AOL had start-up costs to install more hardware for more new subscribers, but technology will always change. This year they upgrade to 56k modems, next year to something else. I see the "infrastructure" hardware cost to remain relatively constant to the number of subscribers. So even if they sign up another 4 million new subscribers, they will still NOT make money. Period.
2) Bad press. Many users have become anti-AOL for the busy signals, billing errors/problems, attempt to sell their addresses to mailing lists, and fleeing of contents and vendors from AOL. Not to mention the voodoo accounting I still don't understand from their last earnings report.
3) Competition. Others have mentioned @Home (cable modem) and DirecPC (satellite dish), but I think they don't compare because they cater to power users who won't use AOL anyways. The big competitor I see is MicroSoft. Have you heard MS bought WebTV? Next waves of WebTV slated for this Christmas will have users sign up with MSN, not AOL. These are the novice users who would otherwise go with AOL.
4) Saturation. Growth of Internet user base has gone thru incredible growth in 1997 - next year should be slower. Why? Because the mass consumer have no practical use for the Internet. Sending emails, surf the net, and download softwares, these are not "must-do" tasks for the mass consumer. They are luxury entertainments. Most consumer can justify $40 / month for basic TV cable service because they use it. It's easy - turn on the TV and watch. But the Internet?! Too complicated! Never mind paying bills or doing taxes on the Internet, most people will stay clear of it for years to come.
5) I remember reading somewhere earlier this year when AOL was in the $30's that some firm has a target of $75. I watched it go to $40, $50, then popped up to $70. Since AOL has 70% institutional holding (don't quote me on this, just writing from memory), I'd suspect the institutions have already begin selling their positions by now.
So, given all that. I don't see upside potential for AOL. But my "prediction" you refer to was based on the options being traded on AOL. It's a short term prediction - only good for the days leading to 9/19/97. I can't predict what's going to happen after that date until later.
Anyway, that's my opinion.
Good luck with your long positions,
Yikes |
