I've taken it in the shorts (pun intended) once already, so I'm being a little more cautious this time around. I've reread many of the posts here on this thread and have been doing some other homework. The end result of all this that I've decided to dive back in early this week--here's why:
1) As far as I can tell, this point hasn't been much discussed, but after going through some annual reports of companies like Mastech that build out telecommunications systems, it appears that colleges, libraries, community centers, etc. are great sources of business. I interpret this to mean that internet access is being made more available to the public and that in many cases, there is know charge to user. Couple this with free e-mail and it looks like a pretty good combination. This coincides with my experience here at Texas A&M--a couple of years ago I subscribed to AOL because I could never connect through the university (believe it or not, AOL was an improvement). This has now changed completely--the University, through a student fee hike, has added something like 3000 28.8 and 56k modems over the last 9 months or so--I haven't gotten a busy signal at any time during the day or night for the last 6 months. I checked with some friends at different Universities, University of Washington, University of Texas at Austin, and University of Oregon, and the story is essentially the same. A month ago my parents called me to tell me that they now both had internet access in school (they are public school teachers) and were changing their e-mail address--after more that two years, they were dumping AOL. I asked about what they were going to do after school hours at home and they said that they generally couldn't get onto AOL when they wanted in the evenings anyway, so it wasn't worth the $20. I know this is just my experience, but doesn't this say something? As the infrastructure is built out, AOL is going to have trouble keeping customers, at least that's my take. . .
2) There appear to be cracks in the AOL juggernaut. There was recently a downgrade and a somewhat negative WSJ article--more of this will follow. The news has been so rosy and optimistic that it just isn't interesting anymore. Many in the press on born contrarians and if they can sell more magazines or whatever by arguing that maybe internet commerce isn't the holy grail everyone is now convinced that it is, then they'll do it. Over the next couple of months, I anticipate a change of attitude towards AOL and other internet wonders that have P/Es of 1000, no profits, but a lot of "potential". . .
3) This stock is almost entirely owned by institutions--when one or two bail, it's going to be a race to the exit and it's going to be ugly. Almost every other stock I can think of with this high of institutional ownership that has taken a nose-dive has done it in a big big way.
4) It's time. The bulls on this thread have begrudgingly admitted that the bears will be right eventually. This is more of an admission that it seems. Some stocks never fall 30 or 40% like AOL is going to (that's a conservative estimate--a P/E of 50 puts this stock around $25 a share)--if the valuation is reasonable and growth is consistent, then you don't get the wild swings up and down--that's not the case with AOL--this stock is a ballon and everyone that's not a complete idiot knows it--it's just a question of when. And like I said, I think AOL's time is about up. . .
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