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I can't help it if I question the intelligence of anyone thinks that this company is undervalued. There is only one reason to buy this stock at these prices: If you think that a bigger idiot than you will buy it from you at a higher price next week than you paid this week. AOL might???? make $1 according to analysts in 1998. Personally, I don't even believe they'll make $.50. The reason I don't think AOL is ever going to live up to its P/E is simple: They don't have any pricing power. The internet itself provides too much competition, say nothing of the other internet services. They cann't continue to harrass their content providers, or they'll simply leave. This is currently happening in their game area. So exactly where is all this revenue going to come from? I agree that internet advertising is growing, but AOL is, for the most part, a third party that gives a home to content providers. If AOL tries to take too big a chunk, these providers will just move to the net. In fact, once these content providers have built up a name for themselves, why wouldn't they move. AOL subscribers can get to them on the net just as easily as if they stay with AOL once they have a subscriber base built up. Look at Barnes & Noble, for example. Once their site has built up a subscriber base, they will do one of two things: 1) threaten to leave AOL for the net unless AOL agrees to reduce their fees, or 2) just leave for the net. Either way, AOL isn't going to get a lot of money out of them. Same goes for other context providers and where the content providers go, advertisers will follow. On the other side of things, AOL is going to have to face continuous technology costs just to compete. Once they finally get the 56k modems up and going, then they're will be another advance. Unless they continually upgrade, customers will leave for faster and better access with other providers or new upstarts. What about AT&T's 128k plans? Cable companies, satellite companies, etc. that are all going after the connection market. In short, AOL is never going to hit any jackpot, they're going to just sit they're festering. It's a never ending treadmill--if they ever stop spending money on aggressive marketing (MSN has the luxury of simply picking up customers because of the way the software is bundled) or technology upgrades, they will bleed subscribers. Given this situation, I guess an intelligent person might play the "bigger idiot" game and buy this stock just because somebody might pay more for it next week. No one in their right mind, however, can argue that this company is a good buy on fundamentals. I'll all for a difference of opinion, but AOL takes things to an extreme. This is a ridiculously valued company that makes no sense and sooner or later everyone is going to catch on and then it's going to be a race for the exits. |
