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Technology Stocks : America On-Line: will it survive ...?
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To: prakash who wrote (7686)2/12/1998 11:58:00 AM
From: Keith J   of 13594
 
It's not that the shorts dispute AOL as an entity. The shorts dispute the business model that AOL is using and the value that Wall Street is placing on this company. This is a company that has accumulated nearly 1 billion dollars in losses since it's inception. Sure, its grown to a much larger size. They made $20 million in a "strong" quarter, and to even reach this number, they had to pull in several of their typical accounting tricks. According to AOL, usage per member in this quarter is already running in excess of 10% above the December quarter. No wonder they are increasing prices. Which in itself is an unknown. What will be the churn increase. How much will the price differential slow their growth rate (bear in mind the competition does little marketing currently, but I have a feeling that's going to change). How many people will go to the annual plan to offset the price hike.

Everyone wants to say, well on a revenue basis, they're fairly comparable to MSFT. Unfortunately, MSFT is highly profitable and a huge cash flow generator. AOL margins are very thin at best. And AOL is still really spending more cash than it bring in. Oh, and AOL is increasing foreign exposure (i.e., the Hong Kong announcement), which brings in all kind of other factors that one needs to consider. In many places, computers and phone lines are still luxuries, let alone internet access.

KJ
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