America On-Line (AOL) Message Board

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Technology Stocks : America On-Line (AOL)

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To: Reginald Middleton who wrote (4102)	1/30/1999 5:24:00 PM
From: Chuzzlewit	Read Replies (1) of 41369

Reginald, you said What about the significant monies invested in marketing programs on a discretionary basis. And I repeat, the analysis is when the company is mature. That means that it is in a no growth (hence static) mode. There is no discretionary funding. No buyouts of other companies. You simply look at free cash flow which are a perfect mirror of economic profit. The assumption of reaching maturity is far from an academic exercise. It is important if you wish to make any sense at all of a company's capitalization and coincidentally avoid the criticisms which you have made -- apparently you did not realize why I specified maturity. Let's take this in stages, and maybe we can reach some sort of agreement. Please answer the following question (it is not a trick question!) AOL currently has a market cap of $80BB. Now suppose we have a company that is a cash cow (the nature of the company is unimportant) with a capitalization of $80BB. What would the free cash flow generated by such a company need to be to justify that market cap? Can you answer that simplified question for me? Would you agree that a free cash flow in the neighborhood of $6 - $8 BB makes some sense? CTC

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