America On-Line: will it survive ...? Message Board

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Technology Stocks : America On-Line: will it survive ...?

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To: Joel Sternberg who wrote (1101)	1/17/1997 4:52:00 PM
From: jack rand	of 13594

Re. RS analysis of telecom costs/margins. There is no such thing as `fixed costs' per se in the sense implied. All telecom costs are capacity constrained. What is AOL spending $350m on to accommodate the new usage?! Ditto adding support reps. If costs were `fixed' they wouldn't be. The ONLY way to look at it with confidence is to look at the actual gross margins. As you can see, despite triple digit growth of subs, gross margins haven't improved. So much for economies of scale. FY 91 92 93 94 95 96 Total Subs (000s) 131 182 303 903 3000 6200 Subs % growth Yr-Yr 39% 66% 198% 232% 107% Gross Margin 48% 54% 52% 32% 36% 37%

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