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: James F. Hopkins who wrote (1185)	2/5/1997 8:06:00 PM
From: Allen Plyler	of 13594

Ok Jim, everybody expects a loss, but how much? I think its great that First Boston sees this Flying Tiger going to 55 in 18 months. If I put on my rose colored glasses and look real hard, I can see the Emporer's clothes. The best explanation I've seen for valuing AOL over 40 has come from a cash model that assumes revenue of around $20 per subscriber including advertising. I estimate the payback from G&A and amortizable costs to take around 8 months to occur for each new subscriber. But you have to remember that the costs from every subscriber that cancels has to be absorbed as well. Add 2 months for that. At best, AOL needs 10 months to be profitable. Too many estimates on the street say it will be shorter than that because they reduce the churn rate and estimate higher growths than historically have been the case. So if everything is going according to the analysis above, the stock is trading based on projected earnings in 99. Based on what the internet was in 95 and what it is today, I wouldn't feel comfortable trading long that far out. Too many things can go wrong in between.

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