AOL's Slide Possibly Another Speedbump
by Blair G. Jeffery
Senior Investments Analyst
Shortly after America Online {AOL}, one of the world's largest Internet Service Providers, announced they would take a $300 million restructuring charge in the 3rd quarter of 1999 for the integration of recently acquired Netscape Communications, investors flooded the market with sell orders and subsequently dropped the massive ISP's stock 5+ points in the morning session of trading alone.
According to Comtex News today, the company, the world's leading provider of online services, said it would assume a special charge in the third quarter of its 1999 fiscal year and would announce the amount at a later date. The amount is said to be in the $300 million range.
In addition to the charge to income, AOL will also cut up to 20% of Netscape jobs in the process to "integrate" the two companies into one system. "Job redundancies and (a) new organizational structure will lead to reductions of 350 to 500 positions at Netscape and approximately the same number across America Online's other operations out of a total workforce of about 12,000 people," AOL said in a statement.
The America Online/Netscape deal was approved last month by the U.S. Justice Department after months of scrutiny with respect to the United States' antitrust laws.
The most amazing aspect of the most recent fall in AOL stock is the likelihood that it is just another speedbump in the road to what is becoming a major competitor to Microsoft {MSFT} as the best growth stock in the 90's. A quick look at AOL's one-year chart is like looking at a Mount Everest painting, straight up. After all, America Online has been rewarded for being one of the only true Internet stocks to even post positive earnings in this decade.
America Online stock has taken a beating lately due to speculation on the prospect and the amount of restructuring charges the firm would finally decide to take to compensate for the infiltration of Netscape. As they say, the news is finally out and AOL stock will most likely continue its ultra-impressive ascent to the clouds.
Of course, some are not so assured of the rising expectations. Brown Brothers downgraded AOL from Short Term Buy to Short Term Neutral as a result of the news, but that was to be expected. It is going to take a lot more than a $300 million restructuring charge to bring down this behemoth.
America Online {AOL} provides Internet online services such as electronic mail, conferencing, software, computing support, interactive magazines and newspapers, and online classes, as well as easy access to services of the Internet. |
