Brian,
1. Sorry for the fixed font.
2. If my attempt at humor bothered you, I'm sorry. However, I'll say what I want, when I want, wherever I want.
Gross margins for a TYPICAL ISP are almost entirely dependent on 4 factors.
) Personnel cost (including overhead)
) Infrastructure costs (comm links, modems, server hardware, physical plant, etc.)
) Ratio of modems to customers
) Price for unlimited monthly access.
Typically, an ISP has a very small marketing budget. Most ISP's will be lucky to eke out more than 30% pre-tax margin, and they can only do that if they are not paying for 800 numbers for users to access them.
Even though AOL saves money by having an absurdly small ratio of modems to customers, they more than make up for it with a huge marketing budget and the expense of having to have 800 access.
Pittmans claim of a gross margin of over 60% is not substantiated by AOL's balance sheet. In fact, Once you do the math you realize that AOL is a giant Ponzi scheme. Each quarters accumulated debt has been financed by more expansion. Last quarter, AOL announced a business model that would allow them to become profitable based on ad revenue and a percentage of sales of products marketed on their network. By all measures, they have grossly overestimated this income. The projected loss for this quarter has grown to .60 per share. Profitability keeps getting pushed further into the future. AOL's gross margin;? they don't have one.
Brian, after the earnings come out this week, why don't you take a stab at a model under which AOL can show profit under the $19.95 per month unlimited access plan. Please use numbers from report. |
