Richard,
I suggest you do the same analysis for the period when AOL cut its hourly rate from $3.95/hour to $2.95/hour. Check your math carefully and the check the actual results. Clearly a static analysis of the current situation would lead one to believe the earnings will be negatively impacted. On the other hand, if you figure it will lead to higher retention, lower marketing costs, more usage, or market share gains, the results will be significantly different than those you are forecasting. As it is known that AOL has been testing this pricing plan within its current customer base, and has developed statistics on its impact (presumably on at least all of the above criteria), I would suggest the net impact is different from your analysis.
As to the suggestion that everyone can learn from my investment errors, I hope they do. I have a month left on this set of options and still hope to get out whole, but even if I lose all the investment, it will be a relatively small portion of the money I have made by being long the stock, long LEAPs, and prior option positions. On the other hand, if "this puppy heads to 20", I will be giving up most of my gains.
Personally, I think that the new pricing plan may have a negative impact that AOL does not foresee yet - heavy users signing up for multiple accounts. If this happens, the revenue impact may be worse than they are hoping for. If we see significant growth in users, but declining usage and revenue/user, I would suspect this as a cause. They have been good at increasing usage/user over time in the past.
Keith |
