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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 235.32

+0.6%

10:22 AM EST

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To: Eric Wells who wrote (72133)	8/6/1999 1:58:00 PM
From: Wizard	Read Replies (2) of 164684

AOL's financial model: >> In fact the Access revenues currently account for roughly 75% of AOL's total revenues. If I were long AOL, I would be very concerned about anything that put those revenues at risk - especially salvos fired from juggernauts such as Microsoft. After studying the AOL model in greater detail I believe AOL is getting to be a much more complex animal but that earnings per share estimates remain quite low and there is healthy upside to current estimates. While it is true that access revenue was 68% of sales last quarter, it is much less in terms of gross profit. I think the easiest way to think about it is this: In absolute dollars, AOL did $436mm more in revenues in the 6/30/99 qtr vs the 6/30/98 qtr (1,377 - 941). They did $237mm in incremental gross profit for the same period (54.4% of incremental sales). In other words, the mix of higher gross margin sales is getting better AND AOL's access margins are improving. However, when you look at wall street estimates, only 45% of incremental sales are expected to be converted into gross profit dollars. AOL has been improving its gross margin on services and the overall revenue mix is getting better. Even if all this access controversy means AOL's service prices go down a little (and I don't believe AOL will do this), the combination of more efficiency through AOL's scale and improvements in communications technology creating lower access costs for AOL and better mix of ecommerce and advertising and software should still leave overall gross margins on an upward trend. Current Wall Street models call for roughly flat overall gross margins and improving operating margins. My point is that there is good upside to AOL's earnings estimates and the stock is off 50%. AOL continues to be a very attractive stock, IMO. I am now averaged in at about $94.

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