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Technology Stocks : America On-Line (AOL)
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To: tang who wrote (6593)3/14/1999 10:49:00 AM
From: Steve Robinett  Read Replies (2) of 41369
 
tang,
You assert, AOL's growth rate of membership may not be x2 every year but AOL's advertisement and e-commerce growth rate may be x3 or x4 for the next 3-5 years and that is what AOL is focusing on.

This idea has been discussed here for years, the so-called leverage the subscriber base argument. The problem with it is that there is no evidence to support the proposition. Advertising and e-commerce revenues grow at between 16% and 19% of total revenues, depending on the quarter (There's some seasonality to the Ad & e-com revs; the most recent quarter showed about 18.5% of total revenues from Ad & e-commerce, the same percent as a year ago when AOL had half the subscribers it does now.)
Ad and e-commerce revenues as a percentage of total revenues have so far grown year after year in a linear manner. That means the only way you get AOL to grow is add members.
It is true that margins on ad & e-commerce revenues are huge and margins on subscriber fees minuscule, so adding a dollar of ad or e-commerce revenue is worth a lot more than adding subscriber fees, meaning AOL's cash flow will improve dramatically as it grows its subscriber base but, again, the evidence so far shows AOL can only grow advertising and e-commerce proportionally with growing its subscriber base.
Check it out for yourself. Start by reading a financial report from the company.
Best,
--Steve
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