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Technology Stocks : America On-Line: will it survive ...?
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To: Andre Lukas who wrote (4236)8/3/1997 4:54:00 PM
From: Steve Robinett   of 13594
 
Andre, Perhaps trying to value AOL on P/E is misleading. I agree 80x next years earnings is rich. Using 6.2 million subscribers (this number is probably low, but it's the only one I could find) and $6.4 billion market cap (92 million shares x $70), the market cap per subscriber is about $1000. When answering services are sold, they get about $500 per subscriber, so the potential for leveraging AOL's subscriber base--a potential greater than an answering service--could account for the difference. On the other hand, plain old Internet Service Providers are worth about $100 per subscriber (their costs are high). In terms of revenue, $1.2 billion gives about $193 per subscriber or just under the $19.95 subscription price, again, AOL's leverage potential could account for the higher per subscriber valuation of the revenue stream.
The valuation still looks rich to me but perhaps not quite as rich as looking at the company only with P/E.
Best,
Steve
P.S. I read the E-mail/phone-number move as Case's inept attempt to leverage the subscriber base. Since AOL's basic business model is outdated--the AOL, Prodigy, Compuserve model--they are trying everything they can think of to stay viable. There will be more of this kind of crap before they find something that works.
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