Nice mention of AOL in the brand new Barron's, out today. Here's Barron's description of the fund manager who is into AOL:
"Almost no mutual-fund manager has beaten the market as consistently as William Miller. From his perch at Legg Mason in Baltimore, Miller has kept his Legg Mason Value fund ahead of the S&P 500 Index in each of the past six years, and so far this year, he's doing it again. No minor feat, that. In fact, only nine funds of any kind have beaten the S&P 500 every year since 1991."
Here's what Barron's has to say about Miller and AOL:
"Never one to shun controversy, Miller lately has been stocking up on America Online. Miller thinks Wall Street doesn't quite comprehend how much cash the company can generate. AOL, he notes, has essentially no problems with receivables, because memberships are almost always paid by credit card, and no inventories to finance. Marketing expenses, he says, aren't expected to increase from their current high level. Meanwhile, the latest round of infrastructure improvements shouldn't need to be repeated for a while.
`This quarter, aside from the costs of adding more modems, they should be cash-flow neutral, and in the following quarter they should become
cash-flow-positive on an operating basis,'' he predicts. ``Cash should gush out in great gobs over the next several years. Their publicity over the last six months could not have been worse, yet their market share has gone up. People hate dealing with this company, but they won't switch. People want to be on AOL. The capacity problems should mostly be over this summer. They've ramped up capital expenditures, and they're expensing everything - they've actually become too conservative on their accounting.'' Miller thinks the stock is easily worth $55-$60 a share. Last week, it traded at 37.
Miller thinks AOL has found an attractive new income stream with last week's announcement of a $100 million deal with Tel-save holdings, a small long-distance phone company. Tel-save gets an exclusive right to market long-distance service to AOL customers, who will be billed by credit card via their AOL accounts.
Miller also thinks the current pricing structure for online services is likely to change, particularly with so many of the players shifting their sights to the business market. CompuServe, NetCom, PSI - they've all moved in that direction. Miller figures that sometime in the next 12-18 months, someone will slightly raise their price for unlimited access by a dollar a month, to $20.95 from $19.95. ``For AOL, that
would mean $100 million of additional free cash flow per year,'' he says. ``Five years from now, it could be $24.95 a month, which would be $5 a share in extra free cash flow, pre-tax.'' Miller sounds like a man who plans to hang on and reap the benefits." |
