America On-Line: will it survive ...? Message Board

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Technology Stocks : America On-Line: will it survive ...?

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To: Todd Daniels who wrote (3008)	5/6/1997 1:31:00 AM
From: Mark B.	of 13594

Here are some insights on AOL and I'd appreciate thoughtful responses. Before you read them, I do think the stock is going higher because Wall Street investors are mostly sheep and there are plenty of stupid companies out there who will make ridiculous deals with AOL because they think there is such tremendous value in AOL's 8M person subscriber base. Now for some insights ... 1) AOL's "profitability" was enhanced by their booking $12M in revenue from the Tel Save deal in the quarter. They had the deal for one month and should NOT have booked that much revenue for the quarter This is questionable accounting AT BEST and is the ONLY reason they achieved profitability. 2) Look at the balance sheet. Accrued expenses and other a/p went way up. When asked about these items (during the conference call), they gave feeble explanations and instead tried to divert callers attn to the much smaller reduction in a/p during the quarter. 3) Mgmt boasted about the improvement in retention in April ("best month ever"). Now lets think about this tidbit for a second. Most of the members who began in April stayed w/ AOL through all of their bad press and access problems in the first quarter. Is it an achievement that this same group remained members in April? Remember, that previous months retention numbers were always inflated by the number of new members who cancel early on. Since they cut back marketing, there were fewer new members to cancel in the first place. 4) Business issues: a) Motley Fool and other online investment services, boards, etc. will reduce amount of time AOL's members hang out in investment area and lessen our need to be AOL subscribers; b) Two Internet chat services are introducing Buddy Lists which has been a major feature keeping people w/ AOL; c) Several companies are starting to offer free, lifetime email addresses. What is going to happen when companies start offering free business card (or cards at cost) promotions to individuals or businesses who sign up for their email service? E-mail has been a killer ap for AOL; d) A March study showed that AOL still has a real problem w/ busy signals. On top of that, when are people going to comment about how slow the service acts when you do get onlline? e) AOL has VERY little in the way of proprietary offerings, especially when you consider the bewildering array of online content; f) AOL's ability to sustain ad revs is questionable because IMHO, most people ignore online advertising and in the next 12 months more and more advertisers will come to this conclusion. The one area of online advertising that I think will do well long-term is very targeted promotions. AOL can't offer as many targeted promotions as other Internet advertisers. I could go on and on here but I'll spare you people more tedium. Needless to say, I don't believe that the AOL business model is worth $5+ billion today and I have serious reservations about their ability to ever put forth a profitable business model. Unfortunately, that doesn't necessarily mean that the stock will tank soon or that stupid acquirers won't assign a ridiculous value to the company in the future (e.g. Disney). So have fun arguing the merits of this company logically as long as you don't think for a second that this company's stock will reflect logical thinking.

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