This is what's happening with AOL. In the face of declining paying
subscriber numbers, they are hitching their revenue wagon to
advertising revenue. Yes, I did say decline in *paying*
subcriber revenues because, if not for their recent "50 hours free"
disk blitz and their "3 free months" to aol-ers who try to
quit, they would still be declining in subscribers, I would bet.
Just my guess. They recent took a write down of about $380 million
dollars for "deferred customer aquisition costs", which, if they
had written off these costs as they acumulated them, would have
probably erased any earnings AOL had chalked up over the last
5 years. But this ad revenue stategy may just work for them.
They certainly have the content to support the advertising...
the same strategy that keeps newspapers so cheap to the readers.
I end with Harmon's article from iWorld speaking to the difficulty of
quitting AOL.
-kate
eMailbag Monday, Reader Rants Raves & Ramblings:
AOL...General Magic: Who's Hot, Who's Not
By Steve Harmon
Senior Investment Analyst, iWORLD
[November 11, 1996]>Logging Off AOL Ain't Easy
"Steve: Have you tried to unsubscribe from AOL? I believe that the erosion of their subscriber base is
significantly greater than the reported 23-29%. As an example, a friend who had been an AOL
subscriber for 6 months decided to change to a local ISP. He called AOL to cancel and was "given" 30
days free service. The first 30 days ended and again he tried to cancel and received 30 more days, free.
He is presently on his 3rd 30 free day period. I've heard similar stories from around the country. It would
be interesting to know how many of AOL's 6m+ subscribers are freebies."
>>Reply: As analysts we always count the average number of subscribers (last year this time + current
subscribers divided by two) and not the current totals released by any access company. This helps
mitigate some of the hype surrounding subscriber tallies. Regarding the 30-day free trials that keep going
and going and going.... AOL used to let those churners go. But now it apparently wants to keep them at
any price, even if it's free. Freebie is as freebie does. I'm waiting for the telcos to be the main access
providers to places that aggregate content. With that, AOL could become a destination on the web
instead of trying to be all things to all people (access, biller, content, packager, retailer). Maybe it simply
can't afford to do it all itself. The transition from 'all things to everyone' to a pure destination likely won't
be easy, especially since content producers can produce their own 'channels' on the web without AOL.
The days of mass-spamming free diskettes in every magazine jacket to grow ahead of the churn and
marketing costs may be long gone. Yet if AOL can control sales and marketing (and perhaps it could if
the telcos do this for it) it could be a boon.
>Ed Catches Some Air
"Steve -- Have you had a chance to take a look at the Global Village Newscatcher? I believe this
product will help revolutionize the push paradigm that Pointcast and others are developing currently. With
this product, users will receive news headlines from the Internet (Reuters, etc.) wirelessly on their PC
with an embedded URL for the full text. The Killer App, however, is the wireless e-mail alert. Now,
users do not have to log on to their ISP's to uselessly check for e-mail. The value proposition lies in
saving time and money by being online when you are actually offline. What do you think about it?"
>>Reply: I saw AirMedia's (the firm that Global Village (GVIL) partners with for NewsCatcher)
wireless receiver last January and thought it had potential for certain applications, chief of which was the
email alert. With multiple modem speeds, graphic-heavy downloads, tons of information to peruse,
rumors of cable modems, difficulty with getting ISDN, tales of 'Network Computers,' and the high cost
associated with all the above hardware/software/access NewsCatcher may find a niche. But it also may
be just another appendage on an already entangled PC.
>Go To The Head Of The Class?
"Just wondering what your thoughts were on Forefront Group (FFGI)? They just released 3rd quarter
earnings on Monday, 11/4, and after extracting one-time acquisition charges, they came in at a loss of
$0.12/share vs. First Call mean estimates of a loss of $0.17. I expected the stock to rocket upon this
news, but only 1,500 shares were traded yesterday. 1,500 shares? What gives? Also, the stock is down
over a point in trading today Nov. 5. Any thoughts or analyses would be most appreciated...."
>>Reply: Forefront group has some compelling products (WebSeeker and WebWhacker to name but
two) and licensed some of its software to Microsoft. The question now could be: what's next? It's
important to stay ahead of the curve as others move into similar product fields.
>Ned's Scape
"Have you thought about moving the Internet Daily Stock Report to a Netscape Inbox format? That
would allow you to include the tables in the email, etc."
>>Reply: We're doing a lot of things with IDSR. Look for hot developments soon.
>PSINet (PSIX) Gets $50 Target
Did you see today's Prudential analyst report on PSINet (PSIX)? Buy rating with a target price of $50
in 12 months. Any comments on this one?
>>Reply: We've been fans of PSINet (PSIX) for more than two years and have been waiting for it to
differentiate itself from the consumer access blackhole. Now that PSINet sold off its consuming
accounts and re-positioned as a backbone, bandwidth re-seller, we're watching with anxious eyes to see
if Prudential's $50 per share target is justified. UUNet (UUNT) sold at about 10x revenue to MFS
Comm. If PSINet trades at a projected 10x our estimated 1997 revenue of about $124 million it could
be a $31 per share stock. Room for premium? There aren't that many of the 'first-tier' Internet
backbones out there and PSINet has an international presence in Asia and Europe. But time will tell on
this one's price. $50 may be bullish short of an all-out bidding war (which we wouldn't discount either).
>In General....
What do you think about General Magic, Inc (GMGC)? Why is their stock performing so poorly? Are a
lot of internet stocks not faring so well or is it just General Magic?
>>Reply: General Magic went public about two year's ago (we wrote it up way back then) and found
the alchemy of a market enamored with anything new and online-oriented. GMGC soared its first day
more than 100% to $31.50 per share February 9, 1995. Its Telescript and Magic Cap, smart,
object-oriented software for wireless email and communication, was supposed to be the 'killer ap' of the
wired-less era. Backers included Sony, Motorola, Apple, Mitsubishi, Northern Telecom, Sanyo, AT&T,
Cable & Wireless PLC and Matsushita. So what happened? With the open-ness of the web, proprietary
systems such as General Magic's fell out of favor with the developers as the Internet revolution took
over. Adding to the lack of euphoria: The PDA market never took off as many of its proponents
envisioned. It may some day but not without the price point coming down relative to the functionality. If I
can buy a multi-media PC for $1,000 what would I want to spend on a portable PDA device that does
about 5% of what a PC can do? About $50. At most.
Blip us with an email on what you think about any Internet stock or investment you've seen or heard
about...or want to get this report delivered via email? Send us your rants, raves or ramblings and they
may be included in this column in a special feedback edition every week. To subscribe via email reply to
the above with "all" in the subject line. Every afternoon after the stock market's close (4 pm Eastern time)
be sure to check iWorld for a roundup of how Internet stocks fared that day with Internet Daily Stock
Report's Market Close Briefing, a play by play of the ISDEX, Internet Stock Index, where Wall Street
meets the Web.
ISDEX is the leading barometer of pure play Internet/web stocks recognized by financial, investment
and Internet industries. For hotlinks to all ISDEX Composite companies and stock quotes,
iWORLD.com & Quote.com bring you fast.quote.com. Stay on top of Net
stocks, check it many times throughout the trading day.
Live, from New York...Internet World Fall Trade Show in December, we're discussing web
investments. Please see Internet Finance Friday for these sizzling sessions on where the money meets the
web.
Internet Daily Stock Report, a no hype investment & industry analysis, has earned the readership of:
Marc Andreessen, Jerry Yang, Esther Dyson, Ann Winblad, Wall Street investment bankers, venture
capitalists, and many more Internet and media executives all over the globe....
Check these other key iWORLD links for hot breaking news and headlines on the Internet
industry:
~Netday News~
~Business.Net~
~Internet Advertising Report~
Disclaimer: Neither Mecklermedia, Bloomberg nor Steve Harmon make specific trading recommendations or gives
individualized market advice. Information contained in the Internet Daily Stock Report is provided as an information
service only. Mecklermedia and Bloomberg recommend that you get personal advice from an investment professional
before buying or selling stocks or other securities. The securities markets are highly speculative areas for investments
and only you can determine what level of risk is appropriate for you. Also, users should be aware that Mecklermedia,
Bloomberg, its employees and affiliates may own securities that are the subject of reports, reviews or analysis in the
Internet Daily Stock Report.
Although Mecklermedia and Bloomberg obtain the information reported herein from sources it deems reliable, no
warranty can be given as to the accuracy or completeness of any of the information provided or as to the results
obtained by individuals using such information. Each user shall be responsible for the risks of their own investment
activities and, in no event, shall Mecklermedia or Bloomberg, its employees, agents or affiliates, be liable for any direct,
indirect, actual, special or consequential damages resulting from the use of the information provided.
c 1996 Mecklermedia Corp. iWORLD Financial Network |
