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Technology Stocks : AUTOHOME, Inc

ATHM 23.76

+1.2%

Nov 28 9:30 AM EST

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To: Rippletum who wrote (13600)	8/5/1999 3:47:00 AM
From: ahhaha	Read Replies (1) of 29970

You have to be careful about the appearances of return at the margin. The marginal return from the marginal sub may seem higher than the average return on the surface, but what isn't seen is the hidden cost. As total subs rises the earlier ones have rising costs at the margin from increased marginal maintenance. As long as the marginal maintenance cost rises incrementally the next marginal revenue must be marked to market or adjusted to reflect the minimum future expected maintenance cost in this next increment of revenue. Then you have an accurate assessment as to whether you have rising marginal returns to scale. Usually you find that marginal maintenance costs equal marginal returns to scale so averaging over time actually does capture the expected future profit margin. AOL may find that margins start deteriorating even though they are adding subs due to these hidden costs which finally start surfacing. Our discussion today touched on subs per home passed and the seemingly low ratio. We weren't saying that as subs increase that benefits don't accrue. We are just a little concerned about the low take rate. 5% seems low. It is hard to see how a marginal argument on 5% is going to compensate for what should be something like 20%. An assignment of rights is also a valuable property because it enables the realization of profit. It qualifies therefore as exchangeable. The question is whether the exchange is justified. Communities have special powers usually subsumed under eminent domain which give them the ability to revoke rights previously extended. The community must offer fair compensation for any such action. The community's action transcends restrictions reserved under consent rights of transfer because the action is for the interest of all individuals in the community. The disputing party is a member of the community even if on an in absentia basis. They operate as though they were members and it is this which gives the community the ability to suspend stipulation under contract and goes beyond the mere limitation to assurances.

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