Jase:
<<Not sure where you get your info but..>>
I don't mean to belittle your valuation technique, but I'm not sure you should just accept Yahoo valuation at "face value."
The reality is that AOL officially lists 275 million fully diluted shares as of their last non-split 10Q filing. Given the vagaries of SEC accounting, this 275 million still doesn't truly reflect all the built up option liability of AOL. Think about it.
All those AOL workers have been getting AOL options all the way up, and diluted share count only references vested options, not true option liability. It also doesn't give indication of option price, meaning options struck at $10 but not vested (not inconceivable) leave AOL shareholders with an additional $70 per option share in liability. You can see how this quickly adds up.
But, let's be generous and assume full dilution of AOL is reflected at 300 million old shares. That's 600 million new ones, at $83, giving AOL a 50 billion market cap. All without any real earnings to speak of. Take away the accounting gimmickry (capitalized software development costs, phony network savings costs, etc.), and AOL barely breaks even with their current business model. And yet they are indeed valued higher than GM and Boeing.
Now I'm not one to underestimate AOL's marketing potential, value of their membership, and appeal to the Street. Lord knows, I've been burned too often as an AOL short to underestimate the momentum and stock price any more. But I do believe we are entering a mania frenzy. And part of it has to do with people buying stocks without even a glimmer of consideration for valuation. Share count matters. Option dilution matters. Perhaps AOL really will turn out to be worth more than Boeing. I can't say no for sure.
But buying something without realizing what you are getting in return is a very dangerous game indeed.
I'll pose a question for AOL bulls. How much money do you think AOL will return to shareholders over the next 5 years, after first paying all their management and workers cheap options, and barely breaking even on their core business?
Regards,
Jason Cogan |
