RE: "Sorry I have to talk about AOL"
Ken P's Call on AOL, HMMM....
"(1) Studies have been done which show that there is NO correlation
between PE and stock performance. The analysis going on here
comparing PEs to growth rate, etc... cracks me up. (Of course,
it is the conventional wisdom, so it must be right!)"
The PEG ratio wasn't invented on this board. Just some "stupid investor" by the name of Peter Lynch. Thank heavens he never ran a mutual fund. Think of what a disaster that kind of thinking would have created. People would have lost millions.
"(2) AOL has a recurring, stable revenue stream. No worry Q to Q about
1/2 their subscribers disappearing. There really is no meaningful
competition."
You need to read a little more about a ISP's customer base. If only IOM's inventory turned as well. A lot of cash is burned trying to maintain the cliental due to your proposed "lack of competition". I quit AOL because of the lousy and intrusive advertisements that would pop-up on my screen. It was easy to find another ISP with similar services and that is now (after the $2 increase)less expensive. I am curious to see how many people will be upset about the price increase. Especially since Internet Service is a true commodity product.
"(3) AOL is a money machine. They can use this money to expand, grow
into other areas. Iomega has to spend all their cash just to
stay afloat, and keep ZIPS on America's minds. AOL has no work
to do to keep existing customers"
Money machine??? Estimated free cash flow for 1998 (Value Line)is $.05 a share. Estimates through the year 2002 aren't much better and clearly do not support a company with a total market capitalization over $10 billion. Sure looks like a money machine to me. Uh Huh, I reckon.
"(4) Advertizers are falling all over themselves to get onto AOL.
Demand is strong, and will get stronger as time goes on."
Yep, they are falling all over themselves. At least that is what AOL's press releases want you to believe. Has anyone every added up the potential income from the advertising deals that AOL announces. I would love to see the numbers. AOL will need hundreds of millions from advertising to generate the income necessary to justify its current valuation. Show me some numbers.
"(5) AOL future is clear and bright. Iomega? future is uncertain."
AOL's future (until the year 2002) is currently reflected in its stock price. Enormous expectations with a great deal of uncertainty (e.g., customer base, advertising revenues). I see only minimal upside and huge downside. The only thing that keeps AOL going is momentum. Momentum is a must for institutional investors to buy into a stock, especially AOL. Once it is gone, lookout below. I find it very interesting that AOL would announce a rate increase just before earnings. Why? Could it be that the results they are about to report do not look good given the expectations and they are hoping that a rate increase would be viewed as favorable for future earnings?
I have said it before and I am sticking to my prediction. AOL is going to crash, big time.
"Good luck!"
Ken you better keep it.
Later,
John
kp |
