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Technology Stocks : America On-Line: will it survive ...?
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To: Muizz M. Kheraj who wrote (583)11/13/1996 5:57:00 PM
From: Randy Tidd   of 13594
 
Muizz -

Thanks for your input.

> projected to earn $0.75 in FY97

Was this projection made before they switched to the cash accounting? I am very skeptical of the earnings estimates (and reports!) since I learned of this shady accounting scheme.

> everyone wants to put a negative spin on it

Well, I don't "want" to put a negative spin on anything, I don't have anything against your or AOL or any of its shareholders. But based on my research, I am just very concerned that AOL is not what it seems and its future is not clear by any stretch of the imagination. I personally won't buy the stock for at least 6-9 months until I see how this pans out.

> Just look at the 7 Million figure.

They have had very high turnover in their customer base and I expect that to continue. I'm not convinced they'll have 10M subscribers by the end of 1997. There is still a lot of discussion about whether or not AOL's content is superior to the web at large. And now that they're directly competing with the other ISP's they will face a lot of competition.

> At the current clip of 5% profit margin

Again, I'm skeptical of this. If they had been counting their "deferred acquisition costs" on a cash basis, they would still be in the red and would have negative profits up to date.

Also, their change to flat-rate pricing will affect this margin. All of their users that spent a lot of hours online can now pay $20/mo rather than whatever they were paying by the hour. They also have other pricing plans for less than $20/month which should be considered.

Randy
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