A few comments, although I think was have a fundamental difference of opinion that is basicly unresolvable: 1) 1500 to 2000 per sub, are you crazy??????--if you want to compare AOL to cable then you need to adjust for the fact that everyone who subscribes to cable can watch TV at once, unlike AOL which currently can only serve about 400,000: Once you factor that in, the picture isn't so rosy, and let me assure you, this point is made by the established advertising community to any customer considering reallocating advertising dollars to the likes of AOL, 2) you're right about brand recognition and a head start, however, somewhere along the line you need to make a profit--AOL hasn't, in fact they're significantly in the hole since going public and it doesn't look like any significant earnings are forthcoming, at least not before 1999, 3) AOL's accounting practices are extremely suspicious--they can't seem to avoid being forced to restate earning about every quarter: This leads me to believe when things go bad, they're really going to go bad, unlike companies that are unfront with their investors and deal with problems honestly and openly--AOL will hide it to the last possible moment and then it's going to be too late to put humpty dumpty back together again, and 4) I don't believe that AOL is the market leader or has the greatest brand awareness, the Net itself does--in many cases the only thing that keeps people locked into AOL is the connection to the net and as the world become more and more wired (i.e. when people can get onto the net from anywhere, home, office, etc) the important of AOL will diminish, and 5) This compay is about 80% owned by institutions--look at other companies heavily owned by institutions (Komag, for example, or APM etc.), when they go down, they go down in a hurry and forgiveness is hard to come by--if a few managers dump their shares, it'll be a race to exits.
In short, I don't have any problem valuing this company. I'll give it a P/E of 75 just for potential, etc. Based on projected earnings of around $.40 for the next 4 quarters, this stock is worth around $30. Of course, companies with a P/E of 75 generally show consistent EARNINGS growth, generally obey GAAP accounting guidelines, etc., things AOL has yet been unable to do, so perhaps this is a little generous. I guess I'd pay $25 for it if I didn't have anything better to buy. |
