America On-Line: will it survive ...? Message Board

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Technology Stocks : America On-Line: will it survive ...?

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To: PAL who wrote (7861)	2/14/1998 1:43:00 AM
From: Keith J	Read Replies (5) of 13594

Here's a blurb from AOL on the analyst's meeting: FINANCIAL GUIDANCE-NO CHANGE TO EPS EXPECTATIONS Earlier this week we anticipated that AOL would be giving clear financial guidance in its meeting. It appears that the Company is comfortable with our current $1.50 FY 1999 EPS, but feels that our $0.93 FY 1998 estimate may be high. We plan to discuss the model with management today on the phone, and will update investors as soon as we have completed an updated model. The overall message is three fold: (1) incremental revenues generated from the $2.00 price increase will go to offset higher telecom expenses; (2) incremental service revenues generated through service revenues (including CompuServe) will provide increased flexibility for investing in the business (acquisitions, carriage deals, etc.) and (3) Through a combination of consolidation, limiting marketing expenditures and leveraging CompuServe's 2.5 million members into adver-commerce relationships, we believe the division will break even in 2H FY1998. POTENTIAL RISKS It is clear that AOL has become a multi brand, multinational consumer franchise. As such, execution will remain the Company's core challenge. We note that over the past 15 months AOL's execution has been nearly flawless. Additionally, we see the emergence of major web players such as Yahoo! and Excite and their partnerships with MCI and Prodigy respectively as a potential threat to AOL's continued growth and acquisition of online subscribers. However, we are still confident that AOL's brand leadership will enable it to capture greater than 50% of all online activity moving forward. VALUATION AND RATING Coming out of this week's analyst meeting we have increased confidence that AOL's momentum in the important adver-commerce market continues to accelerate. Given our belief that online media and commerce stand to become multi hundred billion dollar markets long term we feel that AOL stock should represent a core holding for media investors seeking exposure to the rapidly growing Internet. We plan to revisit our current model within the next couple of days, at which time we will also evaluate our target price and valuation which we believe is likely to come up. We reiterate our "strong buy"(1) investment rating on AOL stock.

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