Hi Christopher,
The best companies with the most experienced management and strongest market positions in the world drop the ball all the time. AOL's past record certainly exhibits technical gaffes and questionable decisions. Yet, the newness and excitement of cyber "this and that" glosses over a lot of these mistakes, at least for the time being. This stock is priced for near-perfection. Can management execute at that level?
But you are right, as far as the status quo goes, everything is beautiful. There is upside, though not without commensurate risk.
I am beginning to think that any shortable scenario comes down to these two events, in order, neither of which are necessarily money in the bank:
Shortable Event #1) Member growth slows dramatically. The likely tip-off: stock price starts sliding without any news or even on positive news (insiders and institutions have been alerted and begin liquidating). Possible causes: price increase was counter-productive, ran out of newbies, economic recession causes households to scale back discretionary spending, home computer sales drop off, or something else. This will happen, probably within the next year or two if not sooner. The question is, how will it be managed? In any event, the stock will eventually settle and begin to recover, mostly due to projected continuing growth in non-member-accretion areas.
Shortable Event #2) Membership actually begins a meaningful decline -- i.e., the big one. The likely tip-off: put volume/volatility premium jumps for no apparent reason, sudden overnight price drop, trading suspended, whatever. Might never happen, or it might happen at the same time as #1. Possible causes: tough to say. I once thought that huge extended technical problems would bring AOL down any minute. But they dodged that bullet, and now that WolrdCom is administering the hardware, extended downtime is much less likely. Maybe average time spent online will increase to such a point that AOL simply cannot or will not spend the $ necessary to allow unlimited access on demand, severely limiting members' ability to log on and forcing a number to quit in disgust. Or, incredible as it might seem to some, people could just plain "tire" of the internet (and its relentless hucksterism) and once the newness wears off, decide to de-list. Something much more appealing than the plain old internet may arise. It might be a much faster, incompatible network or it might not even involve communications or computers. Hula-hoop 2000? One may as well ask: "Why did the growth in people eating McDonalds "food" stop and then begin to decline?" Cheap, yeah, but mediocre quality, lots of competition, tired marketing, lack of new product, ossified management, locked-in format. Some of these already apply.
I just finished reading the Fortune piece -- very favorable and very impressive. Heck, I'd almost buy AOL after reading the article, but at this point it's all water under the bridge. Case is quite right, it IS only the second inning. The bulls think the game is over and AOL won. The bears think the game is very much on, but AOL is playing in the wrong stadium. :o)
Best of luck. |
