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To: Mark Fowler who wrote (63215)	6/18/1999 8:29:00 AM
From: Glenn D. Rudolph	Respond to of 164685

Price: $110 11/16 Estimates (Jun) 1998A 1999E 2000E EPS: $0.06 $0.32 $0.53 P/E: 1847.0x 346.0x 209.0x EPS Change (YoY): 433.3% 65.6% Consensus EPS: $0.33 $0.57 (First Call: 14-Jun-1999) Q4 EPS (Jun): $0.05 $0.10 Dividend Rate: Nil Nil Nil Dividend Yield: Nil Nil Nil Opinion & Financial Data Investment Opinion: D-1-1-9 Mkt. Value / Shares Outstanding (mn): $112,373.5 / 1,186 Book Value/Share (Dec-1999): $2.18 Price/Book Ratio: 43.5x ROE 1999E Average: 16.0% LT Liability % of Capital: 22.8% Est. 5 Year EPS Growth: 50.0% Stock Data 52-Week Range: $175 1/2-$17 1/4 Symbol / Exchange: AOL / NYSE Options: Pacific Institutional Ownership-Spectrum: 48.0% Brokers Covering (First Call): 30 ML Industry Weightings & Ratings Strategy; Weighting Rel. to Mkt.: Income: Underweight (07-Mar-1995) Growth: Overweight (07-Mar-1995) Income & Growth: Overweight (07-Mar-1995) Capital Appreciation: In Line (28-Jan-1999) Market Analysis; Technical Rating: Below Average (21-May-1999) The views expressed are those of the macro department and do not necessarily coincide with those of the Fundamental analyst. For full investment opinion definitions, see footnotes. Investment Highlights: * We spoke with AOL management yesterday and received more color on the quarter. * As we have previously noted, AOL is continuing to diversify it's portfolio of web-based properties and we continue to see strong growth of registered users on these properties. * We remain very comfortable with our revised estimate of 775,000 net new subscribers, which falls within the company's original guidance range of 750,000 – 850,000. This represents 41% year-over-year subscriber growth—strong performance that is in line with the growth of the last few quarters. * As reported on 6/10, growth in the U.S. subscriber base is running significantly ahead of our initial expectations, while growth in Europe is running behind. The European shortfall, primarily in the U.K., is the result of the company's decision to scale back marketing efforts while assessing its competitive response to the emergence of “free” services. Because AOL Europe is a joint venture, the European numbers do not effect the P&L. * We also remain very comfortable with our estimates for other key metrics, including “other” revenue ($290 million) and EPS ($0.10)—both of which are just as important as subscriber growth. We believe that AOL will have another strong quarter overall. Bulletin United States Internet \ Electronic Commerce 18 June 1999 Henry Blodget First Vice President America Online Additional Color on Subscriber Growth and Quarter BUY Long Term BUY Reason for Report: Additional Update Merrill Lynch & Co. Global Securities Research & Economics Group Global Fundamental Equity Research Department RC#10116907 Stock Performance 0 20 40 60 80 100 120 140 160 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10 0.11 0.12 1996 1997 1998 1999 America Online Rel to S&P Composite Index (500) (Right Scale)