Marc, this (w)hole AOL is not easy to understand by old men like me.
FIRST I should make clear that I closed all my short-positions the day after, opened new shorttime-puts and closed them yesterday.
All together a lot of work for a small profit - at least profit.
Actually I'm holding a small LONG position of AOL. But this is really not because I would bet on AOL's future - just accepting the (still) bullish trend of the heard of AOL "investors".
I love your analysis of the fundamentals of AOL, except there's no estimate of what the advertising revenue might be. Isn't that the real driver of the value of the company?
Of course, this is the usual argument for great times coming up to every as(s) who does something on the internet.
Just a few thoughts against that euphoria:
1. Ads and shops: Either advertising-income either merchandising of portals (not only AOL but also Yahoo and others) seem to be weaker than expected. IMO one can see a strong trend to "one-(trademark)-product-sellers" like Dell, Marriot, Datek, Monica's secret (elephant-ware), www.Lufthansa.de or www.Beate-Uhse.de while "a bit of anything" is not exactly that what customers seem to like. IMO effictive advertising must be placed on points of interest, f.e. a R/T-service on a brokers site a.s.o. Why should a company pay for merchand-services if any can organise merchand-servers itself "just for nothing"? The only problem is called "logistic". Sooner or later any company will take their sales to themselves. BTW: Do they have visitors from outside? I don't believe. WTH can "I" sell to workless chatters paying for ads at AOL?
2. Culture: AOL is not "a todays Microsoft" - better a todays Lotus. A strong company grows because they have better or innovating products or services. AOL grew by buying an oldfashioned competitor. AOL sold worse (not reliable, slow) access later and more expensive than stronger competitors (like ATT, IBM). A competitive company (like Microsoft) used to come agains market-dominating products fighting for his place over years, AOL just was there say resulting from a former centralistic content-service.
3. Innovation: AOL has structural problems compared to modern ISP's: their star-type-access with only 17% (!!!) internet-use. This is a good base for collapsing when traffic will increase. But will their traffic increase? The growing of US-user-numbers seems to slow down. And international AOL is competing as outsider, facing brute competition of local telcoms. Then consider technical improvements: new media like cable and satelite, but - IMO very important - packet-GSM, starting f.e. in Germany this year with double-ISDN-speed. AOL has not the position to innovate - worse, they will have problems to finance reactions.
4. Margins: Telcom-industries (outside US) are starting with "all-in-one" offers, where internet-access and phone-line are offered together. This will outpace every "dependend"-ISP, esp. for power-users. Access-fees of around $5 per hour (+phone!) cannot survive for long when telcoms offer free (!!!) access, just taking standard phone-fees.
5. Marketshare: 17 Mio. sounds good - but compared to 1 billion households worldwide it's just a beginning. F.e. in Germany AOL holds a "good" second place - with not more members than a middle town has inhabitants. Why? German Telekom had been there before AOL has come. BTW: MSN gave up here. Why has IBM his "Global-network" sold? Why ATT, a telcom, has bought Global NetWork? It's their natural business! I see a clear dominance of telcoms in this market very soon.
6. Content: Similar to sales and ads, AOL competes with profs from broadcasting and press. Do they have a chance? History of business shows that specialists have almost been winners at last.
7. Legislation: Cause AOL offer access AND content, they are easy accessible by governments, police and judges - and naturally the IRS. Why is the web "wild" - it's because it's not easy to grip one. AOL is vulnerable, more than every competitor, especially than every content-provider. |
