RUMOR OF A SPLIT
Here's the latest posting in the Rumor Mill:
America Online (AOL) provides easy access to the Internet, as well as a
variety of online services: electronic mail, conferencing, software,
computing support, interactive magazines, and online classes. With some
sixty percent of the total market share, America Online is the top
provider of online services in the world. The AOL approach appeals to a
wide range of subscribers, including those seeking entertainment,
educational sources, and business information. Subscriber demands for
flat-rate pricing and growing competition have led AOL to look for
revenues beyond those provided by subscriber fees alone. The company now
sells advertising on its Web site and markets the services of other
businesses, collecting fees on sales to AOL subscribers. AOL stock is
one of the most popular on Wall Street. Many times, the AOL volume
exceeds that of any other issue. The price is up more than 100 percent,
since the first of the year. The brokerage houses continue to think well
of the firm. Of the 31 following the stock, 23 have issues "strong buys"
and 8 have recommended "buys". We are hearing rumors of good news from
the company. The most persistent is speculation that the stock will
split. That may seem a bit farfetched, given that America Online split
three times (2-for-1) in the past 13 months. On those three occasions,
the share price was between $130 and $170. Shares are currently selling
for $158 1/2, a level at which the company has demonstrated that it
likes to pull the trigger. Are there enough shares available?
Shareholders have authorized the company to issue 1.8 billion shares.
With the recent purchase of Netscape, just over one billion have in fact
been issued. There are not enough shares for a 2-for-1 split, unless the
board approaches the shareholders for more. There are, however, enough
shares for a 3-for-2 split. We think that the AOL board will consider
such a split, in order to get the share price down to a more a
accessible point. Over the past 52 weeks, the stock has traded in the
range $17 1/4 to $175 1/2. Should you decide to invest, use a stop-loss
of $145.
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