Here are just some of the flaws in your analysis:
>I can't understand why everyone is so negative. Here is a
>company with well over 7 Million subscribers (latest headline
>on Yahoo), projected to earn $0.75 in FY97 (which puts it at
>35 PE) with growth projected at 50% annually year over year
>into the 21st Century,
Growth in the 1st quarter (revenue and subscribers was only 6%...
>Just look at the 7 Million figure. At $20 per month, 12 months, and
>expected growth to be to 10 Million subscribers by the end
>of FY 97, let's look at their revenues for FY 97:
>$20 x 12 x 8,000,000 (~ average subscriber base, including f
>ree month) = ~ $2 Billion Revenues in FY 97, from subscriber
>sales alone.
95% (per Pam McGraw) of AOL's subscribers currently don't exceed 5 hours a month. The only guestimate I've see so far is that half of the subscribers will opt for the $19.95/month plan. Your revenue figure is at least 25% too optomistic.
>At the current clip of 5% profit margin, this brings earnings by my
>simple calculations (excluding all other revenue potentialialities
>(such as advertising)) to $1.21 in FY97. I feel that this is extremely
>impressive and unless you have figures different than those above,
>I can't see how you can continue to bury this company.
You seem to be forgetting the $385 million writeoff, and that AOL plans to write off its marketing expenses as they are incurred now, which will drastically reduce that illusory profit margin.
The biggest flaw in your analysis is the most critical one. Let's assume for the sake of argument that your numbers are correct. If AOL winds up with 8 million unlmited time users, the industry norm would be that AOL would need a total of 1 million modems online to provide adequate service. AOL's contract with BBNPlanet is for about $1200 per modem. Does AOL have around $1 Billion in cash sitting around idle to buy another 750,000 modems and install them? I don't think so.
Well, maybe some portion of those 8 million will use the "bring your own tcp/ip" accounts. Then reduce your revenue from $19.95 to $9.95/month.
This isn't even considering how many persons currently have multiple 20/20 plan accounts who will now cancel all but one of them and consolidate with one unlimited time account. |
