America On-Line (AOL) Message Board

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Technology Stocks : America On-Line (AOL)

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To: Chuzzlewit who wrote (4014)	1/30/1999 4:33:00 PM
From: Reginald Middleton	Read Replies (1) of 41369

<At some point market cap needs to be based on free cash flow. I have yet to see the free cash flow that would justify these kinds of valuations.> This is not true. Free cash flow does not take into consideration monies that are spent on reinvestment to grow the company that would hae flowed to retained earnings or dividends in a mature (cash cow) company. AOL does not have to sink the funds into marketing that it does. MGMT is trying to increase market share and is doing so at the expense of accounting earnings. This process can go on for quite some time (reference MSFT). This is understood by the street, hence the higher valuation (reinvested cash flow, amortized for necessary expendituress) are beins counted as operating profit. See See the Case Against Earnings at rcmfinancial.com

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