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Technology Stocks : America On-Line: will it survive ...?
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To: steve lipson who wrote (5745)11/11/1997 11:02:00 AM
From: Steve Robinett  Read Replies (1) of 13594
 
Steve, IMO the key to understanding AOL's potential is "other revenue." Adding subscribers is all well and good but AOL is not going to get rich cranking $19.95/month out of subscribers for online access. The only way they can justify their market cap is to leverage that subscriber base by selling them something else or advertising to them. "Other revenue" amounts to about 16% of total revenues, up from 11% a year ago but down quarter-to-quarter. IMO most analysts are overvaluing the potential of "other revenue," usually giving AOL a 10x discount. That is, they suggest AOL's other revenue will grow 10x over the next couple of years. AOL is still groping for a way to make that happen. Every other day, they announce some new scheme to punch up other revenue, trying to turn their outmoded business model (the content provider model of Prodigy & Compuserve) into something--they don't yet know what--that will give them an edge. Advertising is their best shot at the moment and they evidently keep pissing off advertisers.
Maybe they'll figure out something that works, maybe not. The question's still open. At the moment, IMO, about half the market cap of AOL is religious ferver from analysts who find that AOL stock, a brand name, is an easy sell to gullable investors.
Best
Steve
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