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Technology Stocks : America On-Line: will it survive ...?
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To: Dick Ross who wrote (958)1/8/1997 10:19:00 AM
From: John Howell   of 13594
 
Dick,

While I agree with you that there are no small time ISP's ready to step up to the plate against AOL, there are plenty of big companies (ATT, the baby Bell's, cable tv providers) that are already going after the ISP market. Keep in mind that as the use of the web grows, people will begin demanding services and content that demand much greater bandwidth than is currently available. Those companies with fiber to the curb or coax to the curb will win the race.

AOL's model of running a breakeven ISP service to profit from ad revenues could run into trouble because;

1) Advertisers will want to put their content on the systems with greater bandwidth, where they will be able to display more sophisticated content.

2) AOL owns no infrastructure; their com links are leased. This could be important as deregulation pressures the government to regulate that users start to pay more for local connectivity.

3) Right now, AOL is nothing more than a giant bulletin board system that caters to first time internet users. As users become familiar with the net, they realize that it is possible to access services and entertainment that are far more sophisticated than what AOL currently offers, and that you can access these services more conveniently through an ISP that doesn't suffer from traffic problems.
The advertisers will follow.

It is my opinion that although you may see another spike in AOL's stock price in the short term (3-6 months), in the long run AOL can not make very much profit, and the stock will be properly valued at that time.

I'm interested in your opinions, whether or not they jibe with my own. Feel free to rebut my points at this post.

Sincerely,

John

P.S. Short it if it hits 40 again.
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