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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: SpongeBrain who wrote (27292)	7/28/1999 7:32:00 PM
From: puborectalis	Read Replies (3) \| Respond to of 41369

ARCHIVE July 27, 1999 Time to Buy AOL (Again)? By Alec Appelbaum WHEN IS $100 cheap? When it's dinner for four in Manhattan. According to certain concert promoters, when it's the right to stand in a field and watch faraway bands while munching on four-dollar pretzels. And -- just maybe -- when it's a share of stock in America Online (AOL). The bellwether Internet company has had a rough week. First, AOL found itself painted in the unfamiliar role of open-access meanie when Microsoft (MSFT) and Yahoo! (YHOO) developed software to let their customers have access to AOL's instant-messaging service -- and AOL promptly blocked the software. Then, it saw investors get nervous on the disclosure that executives, including CEO Steve Case, had sold off some of their shares. Then on Tuesday, that tech epicenter, San Francisco, gave AT&T (T) a cable franchise that lets the phone giant keep AOL off its cable wires and makes Excite At Home (ATHM) the only Internet service provider over local cable connections. Together with a general interest-rate downdraft in the tech sector, all this news has knocked AOL 23% lower between July 9 and Tuesday's close -- down below the C-note mark. Normally, you might expect us to nod smugly when an Internet stock loses some of its rare-air valuation. But while we may not always agree with its most ardent fans, we recognize that AOL is not just any company. AOL is pushing forward on a campaign to upgrade its 17-million user base to a razzle-dazzle, high-speed environment known as broadband; it's inking deals with players from 3Com (COMS) to Royal Bank of Canada (RY) and reported a revenue jump of 46% in the past fiscal year. By any fundamental measure, this company is far from cheap. It still sports a trailing 12-month P/E of nearly 167 and, for year-2000 earnings, a forward P/E of 161. No matter. When AOL stock descends to this level, attention must be paid. Ted Broomfield of SoundView Technology Group, stressed that the "pivotal" questions facing the stock won't become clear until the next quarter's results are in. Those questions involve subscriber growth and AOL's ability to sell those subscribers an increasingly broad array of e-commerce goods and services -- in industry parlance, what's known as "monetizing your customers." The subplot in the subscriber-growth part of the equation is the growing popularity of broadband. Locked out of the cable-modem market by Excite At Home and AT&T, AOL has aggressively courted the phone companies and their competing high-speed technology known as digital subscriber line (DSL). While cable Internet access has reached about a million homes so far, DSL is playing catchup. "The catalyst that is going to drive the stock up or down in the third quarter is whether DSL will be easy to use, easy to install and transparent to users," says Broomfield. "If it is, AOL is poised for a breakout quarter. Right now we don't have any definitive answer other than it looks promising." Of course, the reliability and friendliness of the network lie beyond AOL's direct control. That's one reason AOL wants to wage an agreement that lets it lease access to central cable equipment from AT&T and others. AOL is taking the broadband threat seriously, and its phone-company partners Bell Atlantic (BEL) and SBC Communications (SBC) are finally rolling out DSL in several cities. No matter your suspicions on DSL, the instant-messaging fracas shouldn't tip you one way or another. "Some investors were too quick to reach the conclusion that [the flap] was going to get AOL under heavy fire from two major powerhouses," says Phil Leigh, an analyst with Raymond James & Associates. "The correct impression is that AOL has such a valuable property that others are clamoring to participate." Leigh says there are 40 million instant-messaging users and 17 million AOL subscribers, a sign that this service is going to be a breadwinner for AOL for a good while. For Leigh, revenue from e-commerce and advertising matters more than new subscribers. "The real strength of the story is that they have virtually unstoppable momentum in e-commerce," he says. "Just about everybody is awakening to the power of the Internet, and as companies wake up, they want to get to the sites that have traffic." Melanie Posey of International Data Corporation predicts that in six to eight months, AT&T will move aggressively on a deal to give AOL access to the cable pipes. "At some point AOL is going to get the access it wants," she says, "but AOL might not get it cheaply." That may mean a revenue hit for a quarter or two, which would scare Wall Street analysts and other short-timers. Of course, general nervousness about rising interest rates takes some oomph out of all Internet stocks, and AOL's strength at Christmastime depends to some degree on consumers' response to DSL. Still, Case and company are pushing hard on all cylinders -- new software, new alliances, open access and e-commerce. Tuesday, the stock rallied above 101, but closed slightly above 98. That's still a long way from the stock's split-adjusted 52-week low of 17 1/4 -- a price, barring an Internet meltdown, that AOL stock is likely never to see again. LATEST STORY >> << MARKET TODAY ARCHIVE