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Technology Stocks : America On-Line: will it survive ...?
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To: Allen Plyler who wrote (473)10/30/1996 11:43:00 PM
From: William T. Katz   of 13594
 
Allen,

AOL is a perfect case to make me scratch my head and realize I know nothing about stocks. You say "Netscape still maintains a much higher valuation so there could be an argument that AOL is undervalued as an internet stock relative to the market's valuation of that sector." But the truth of the matter has been repeated a thousand times: AOL has not made a profit in over 5 years if you consider their $385 million charge to cover all those deferred costs! What is up with that??

As much as I think Netscape is overvalued, at least I can see where people are getting their figures. NSCP is profitable and will get more profitable in time. Sure they have a sky-high P/E, but how on earth do you value a company which has more red than black in the past? And even using their weird accounting scheme, AOL's trailing P/E is much higher than the growth rate they will have vs competition like Microsoft, the other ISPs, WebTV, and all the other companies they are now confronting.

I closed my AOL short quickly when I saw the run-up in price, because I'm not so stupid as to think the market will think like me. I'm just trying to figure out what the heck they are thinking. Where on earth does Alex Brown come up with $70 price target??

Confused as hell,

Bill
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