I am considering making an investment in AOL and am trying to understand AOL's valuation when compared to other companies. While recognizing that AOL might be considered to be in a unique position, it does seem to me that one should be able to compare AOL with Time-Warner and Disney. Both companies are in the entertainment and media business and derive a considerable amount of their revenues from adverstising and subscriptions.
I took each companies' latest quarterly report and found the following:
Time-Warner
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AOL Quarter X AOL
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Market Valuation
as at 02/28/98 $12,160.40 $37,732.50 3.10
Sales Revenue $521.60 $9,458.00 18.13
Operating Profit $51.80 $1,737.00 33.53
Net Asset Value $128.00 $9,498.00 74.20
Time-Warner closed at an all-time high.
Time-Warner, with sales revenues 18 times AOL, operating profits 33 times AOL and NAV 74 times AOL, has a market valuation of only 3 times AOL.
Disney
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AOL Quarter X AOL
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Market Valuation
as at 02/28/98 $12,160.40 $75,557.80 6.21
Sales Revenue $521.60 $22,473.00 43.08
Operating Profit $51.80 $3,945.00 76.16
Net Asset Value $128.00 $9,498.00 135.04
Disney closed near to its all-time high
Disney, with sales 43 times AOL, operating profits 76 times AOL and NAV 135 times AOL, has a market valuation of only 6 times AOL.
I then took a telecommunications service provided, Bell Atlantic and did the same comparison.
Bell Atlantic
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AOL Quarter X AOL
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Market Valuation
as at 02/28/98 $12,160.40 $39,289.10 3.23
Sales Revenue $521.60 $22,498.20 43.13
Operating Profit $51.80 $8,186.50 158.04
Net Asset Value $128.00 $7,442.80 58.15
Bell Atlantic closed near its all-time high.
Bell Atlantic, with sales 3 times AOL, operating profits 158 times AOL and NAV 58 times AOL, has a market valuation of only 3 times AOL.
It seems to me that, if the market's valuation of AOL is reasonable, then Time-Warner and Disney are grossly undervalued. However, if the market's valuation of Time-Warner and Disney is reasonable, then AOL must be grossly overvalued.
Am I missing something? |
