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Technology Stocks : America On-Line: will it survive ...?
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To: jack rand who wrote (1106)1/17/1997 5:11:00 PM
From: Joel Sternberg   of 13594
 
>Re. RS analysis of telecom costs/margins. There is no such thing as `fixed costs' per se in the sense
implied. All telecom costs are capacity constrained. What is AOL spending $350m on to accommodate
the new usage?! Ditto adding support reps. If costs were `fixed' they wouldn't be. The ONLY way to
look at it with confidence is to look at the *actual* gross margins. As you can see, despite triple digit
growth of subs, gross margins haven't improved. So much for economies of scale. FY 91 92 93 94 95 96
Total Subs (000s) 131 182 303 903 3000 6200 Subs % growth Yr-Yr 39% 66% 198% 232% 107%
Gross Margin 48% 54% 52% 32% 36% 37%<

Thanks for the info, Jack. For all who are interested in shorting this baby, remember, do not go in too deep, too fast. True, to bears 40+ seems like an incredibly insane price, but it won't if this thing hits 50. Give yourselves a chance to short some more at 50 by not overextending yourselves too much now. Done let yourselves get squeezed. Sorry for the unsolicited advice.
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