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Technology Stocks : America On-Line: will it survive ...?
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To: Dom B. who wrote (4506)8/17/1997 8:09:00 PM
From: John Kratus   of 13594
 
Dom,
Is AOL a takeover candidate? Not at these prices. AOL is currently valued at $770 per customer. That's a LOT of monthly payments! And it's not clear how AOL is counting its customers. How many one-month free trials are included in AOL's figures? Does a family of four count as four different customers?

Furthermore, AOL has never made a profit. Its huge one-time charge six months ago more than wiped out all its previous earnings, and we now know that AOL has not had a profitable quarter since then.

So AOL's price is based on the hopes of someday seeing a profit. With the rapid changes in the internet, that's an iffy proposition. Now, how many corporations that can afford AOL's $7 billion price tag, are going to take this chance? There's no way that Microsoft would given its previous investment in its own Internet Explorer and its U.S. Justice Dept. concerns. And I can't imagine any other company having the money available or taking the risk.

Let's face it, AOL is a story stock and a momentum stock. But the story is getting old (e.g. AOL's recent PR problems and financial restatements), and the momentum is out of the market (e.g. no one's talking about Dow 10000 by yearend).

Even a supporter like First Boston, which named AOL its stock of the week last week, was expecting an 11.5% increase over the next 18 months. Heck, I can get a return like that from a CD at my credit union.

I think that the thrill is gone from AOL. In my opinion, it will not revisit 75 for a very long time.

John
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