*AV*--I have seen the unusual rise in the AOL stock as well as everyone else. I also believe it will come crashing down. Timing is what has me puzzled along with "herd mentality".
First we have the split which becomes effective mid March.
Second, we are off 2.75 on Friday.
Third, uncertainty as to what will happen when split announcement settles in over this weekend. It was only Wednesday when it was announced and we are up from there.
Fourth, relatively speaking, this stock is still tending toward the upside making any puts you like cheaper if you hit the peak.
Fifth, they announced an increase in pricing for the service which will generate increased revenues and profits. With over 10 million subscribers, a few dollar increase in service rates generates a great deal of profit straight to the bottom line.
Sixth, Earthling will make an attempt to lure away AOL customers due to dissatisfaction with AOL and lower prices for an Earthlink account. This earthlink conversion may be slow on the uptick and will not be accomplished over night. Earthlink offers a great alternative and if I were on AOL, I would switch.
Seventh, will the defection to earthlink and other ISP providers happen at a rate in excess of the additional revenues to be generated by raising prices. Also how long will people take to convert to other services due to user motivation (procrastination), waiting for the billing cycle to end, time it takes to switch, effort required to switch, etal. If a shift in users does not happen fast enough, AOL generates better financials.
Eighth, how many people won't give a damn about the extra $5 and determine it is not worthwhile to switch for the following reasons:
(1) As the defection occurs there will be less AOL traffic, solving some of my problems. (2) going to another ISP could choke their system as much as AOL is bogged down now so you get no net benefit. (3) Extra Revenues and profits might lead to additional bandwith provided to reduce congestion. (4) All my stuff is in AOL "format" (I am familiar and comfortable) and reluctant to change. (5) If enough people switch, AOL may reconsider its price hike and then maybe they lure back users (much like the long distance wars with MCI, Sprint, ATT).
Ninth, the major telephone and cable companies are coming on strong to get into the internet business through WebTV and through their own ISPs. This is both good and bad news. It makes AOL a takeover candidate just for its present subscribership. At $25 per month per subscriber, you have over $3 billion in gross revenues without the advertising revenues that are also derived.
Tenth, contrast the sale of Hotmail to MSFT for what I believe to be an outrageous amount of cash with the 220 million shares of, let's say $60 AOL stock after the split, do you have a company worth $12 billion. It is way over priced but things have sold at exorbitant prices recently in the market.
I have kept this to 10 items of thought since I can bring other things to light. My basic thought before typing this was to advise going for the Jul 90 or 110 puts to give you enough time to allow nature to take its course. However, as much as I believe AOL will go the way of NSCP and take a mighty fall, I am clueless about timing. I am also worried about the migration away from the traditional ISP providers to the telephone and cable companies.
Patrick mentioned how 112K service could be provided over two phone lines, recently. I just finished an article by US West in Telephony Magazine and was enlightened as to the direction the local phone companies can take.
Was NSCP a flash in the pan or will it regain its greatness?? Personally, I do not think it will achieve past glories. Is AOL overpriced and just waiting to plummet?? I think it is but I do not know when, so your PUT play should have the least risk than my PUT play or a short of the stock. However, with the unknowns, I would be more inclined to jump onboard the ELNK train and try to ride it up some more. I think trying to pick a winner here might be lest risky than anticipating when something is going reverse and become a loser.
Whatever you decide, it would be worth the extra premium to take your PUT play out into the future to allow all the factors to come into better play and focus.
In about 8 months this stock has doubled from $60 undeservedly (my opinion). Everyone(slight exaggeration) hates AOL for good reason. With such poor service and perception, it is a wonder they are stilling operating. But they are and they are increasing their subscribership. You see less and less of the freebie sign-on promotions coming in the mail and the company took a huge write off last year for the costs associated with attracting new customers. With this behind them, advertising dollars, new equipment, etal., they are still king of the ISPs. GO figure this type of momentum.
AOL will be a flash in the pan 10 years from now unless it gets big enough to BUY a telephone company and become a telecommunications company or be absorbed by a telecommunications company. Otherwise they will be displaced by a more efficient form of internet access through the RBOCs.
Unfortunately, the contrarian perspective is that IOM keeps marching on, becoming OEM'd into more and more equipment (KLAC systems as well as PCs, etal.) with the higher capacity LS drive or SYQT drives available. Surely IOM should have fallen by the wayside but it did not. First to market, first to gain recognition or notoriety, and fast becoming a mainstay for the masses. I own IOM waiting for it to repeat its rise and split only to rise and split once again track record. It seems unstoppable. Can't we say the same for AOL. We may hate it, it may be a reckless investment now, but the market is inefficient at times. This could be a runaway train that has gained so much momentum that a major wreck has to occur to de-rail it.
With all this said, I have convinced myself to watch from the sidelines and wish everyone playing this game on both sides, my wished for the best of luck. as for me, I kinds like the less complicated situations that do not give me both a headache and keyboard cramps<GGG>.
Andrew |
