Glenn, I got back out @ 107. This Blodget might have more influence than
Mary,Lise,Jamie, Keith, etc,etc. How did this little amateur, come from no where to
where he's @. This guy reminds me of an umpire that called one strike right, and now
he's another prophet.
I don't know but CBS market watch did a bad jop of reporting. Here is the report:
America Online – 10 June 1999
2
Summary. There has been much speculation that AOL's
subscriber growth in the June quarter will be slower than
expected. Relative to the company's performance versus
expectations for the last several quarters, this appears to be
true, but the net adds should still fall within the consensus
range.
Consensus sub growth is higher than the company's
guidance. After the last conference call, AOL told the
Street to expect 750,000-850,000 new subscribers in the
June quarter. Despite this guidance, some overexuberant
analysts apparently printed estimates of over 1 million.
Based on the company's performance relative to guidance
for the last few quarters, such numbers seemed
conceivable, although they would have represented a
significant acceleration in the year-over-year growth rate.
Sub growth should fall in low end of guidance range.
Based on conversations with management over the last few
days, we believe that AOL's net adds for the quarter will
come in at the low end of the consensus range—perhaps
between 750,000 and 800,000 (versus our estimate of
813,000). This performance will clearly disappoint some
investors, so we would not be surprised to see weakness in
the stock. We should note, however, that AOL missed its
subscriber targets by almost 100,000 net adds in the June
quarter last year, and because of the strength in the rest of
the business, the stock barely blinked. We should also
note that net adds of 775,000 would represent 41% year-over-
year growth, in line with that of the last few quarters.
Europe is weak.... The weakness in the sub growth
relative to our estimate is the result of significant weakness
in Europe and Japan, which should be partially offset by
stronger-than-expected growth in the core U.S. business.
We were looking for 200,000 new subs in the European
and Japan businesses. The actual performance is likely to
be closer to 75,000—a steep decline from the 350,000 and
250,000 added in the two prior quarters. Although one
weak quarter does not make a trend, AOL's international
operations are very important to the company's growth
story (and the stock's valuation), so it will be important to
understand exactly why the growth is so weak
(management did not have good data on this as of our last
conversation). One obvious explanation is the “free
access” movement in the U.K., in which Dixon's Freeserve
has blown past AOL to grab the No. 1 ISP slot,
significantly slowing AOL's growth in the process. AOL
has reacted to this threat by slashing its own prices in the
U.K. market, but based on a rash of recent “free”
announcements from Microsoft, Dell, and others, it is
likely AOL will have to match the free offer to regain
momentum.
…The U.S. is strong. The good news about the sub
growth is that the core North American business is
growing more quickly than we had expected. The
company is likely to easily exceed our estimate of 613,000.
The North American subscribers generate all the
revenue, so we remain very comfortable with our
estimates. With the exception of Canada, all of AOL's
international operations are structured as 50/50 joint
ventures, which means that they aren't consolidated into
the financial statements (in this miracle of modern
accounting, AOL's partners consolidate the results and
book all the losses until the ventures turn profitable; then
AOL begins to book 50% of the profits as “other income”).
Because the North American subscribers generate all of
the revenue, therefore, we are comfortable with our
revenue and earnings estimates ($1.3 billion and $0.10,
respectively).
We are comfortable with our “other revenue” estimate of
$290 million.
[AOL] MLPF&S was a manager of the most recent public offering of securities of this company within the last three years.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 1999 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). This report has been issued and approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is
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