America On-Line: will it survive ...? Message Board

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Technology Stocks : America On-Line: will it survive ...?

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To: Bald Man from Mars who wrote (7594)	2/11/1998 1:03:00 PM
From: Keith J	Read Replies (1) of 13594

Blurb from briefing: AMERICA ONLINE INC. (AOL) 114 1/8 +5 1/8. Share of online services provider continue to charge ahead, pushed higher by last night announced 2-for-1 stock split. It certainly did not hurt that the company also beat fiscal 2Q earnings expectations by a penny. Nonetheless, the stock has certainly been on an impressive upward run, helped in part by short sellers being squeezed. The stock is up an impressive 14.0% in the past three days helped in part by Wall Street growing even more bullish on the issue and raising price targets from the low $100s to around $150 a share following the announcement that it would raise its monthly fee by $2. In addition, the stock has continued to receive positive feedback from analysts and today both Prudential Securities and Volpe Brown have reiterated their "buy" ratings on the stock. Nonetheless, this issue has become a Wall Street darling and has been allowed to trade at very lofty multiples without any major consequence. Given that the latest price increase is not expected to affect 1998 earnings results, the stock currently trades at more than 126 times its projected 1998 EPS of $0.90 a share. Even going into fiscal 1999 and assuming that the current First Call estimate of $1.64 a share is on the low side due to it not incorporating this week's price development, the stock still trades at well over 50 times earnings. This latter multiple of course assumes that there is very little attrition from its latest price hike. One would suspect that at some point new subscriber growth will slow and that price will become an issue. The latest price hike certainly doe not make a case for continued rapid growth as in the past. If anything, it should slow its subscription growth rate and the churn rate should rise. And in the end, valuations do matter.

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