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Technology Stocks : America On-Line: will it survive ...?
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To: put2rich who wrote (13453)1/21/1999 11:20:00 AM
From: Steve Robinett  Read Replies (1) of 13594
 
Thanh,
It's nice to see someone actually trying to value AOL (instead of just following the momentum morons) but valuation seems to me difficult due to the unreliable assumptions one has to make. Obviously, P/E is a ridiculous measure. AOL does have cash flow, at least as of this quarter. It works out to 53 cents/shr. For me, figuring free cash flow for AOL is next to impossible considering the kinds of things they capitalize, software, etc. But if we assume a 50% growth in cash flow per year due to both increased subscribers as more of the world comes on line and increased e-commerce revenues from advertising and various pieces of other vendors pies, AND if we discount that out to the point of marginal insignificance (say, ten years), we get a valuation of about $160/share. This number is obviously suspect--ten years, after all, is forever in cyberspace--but I'm just saying it is possible to justify AOL's current price.
Best,
--Steve
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