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

To: Pruguy who wrote (27399)	7/30/1999 12:23:00 AM
From: Jeff Dryer	Read Replies (1) \| Respond to of 41369

>then she would have been recommending it around 20 in May. Please explain. >Analysts have been recommending this company in mass for >about a year now. Yep. That's why AOL probably quadrupled in a year to a VERY HIGH P/E ratio to the point where nothing mattered anymore. P/E didn't matter, market cap didn't matter, competitive threats didn't matter. >If analyst are so bad, why do you think they have a following, mutual >funds listen to them and brokerages are so successful. If this is true, it explains why most mutual funds underperform the averages. Brokerage firms are on the whole not very successful for people who buy and sell on their recommendations. >The world is not the scam you make it out to be, they just aren't >always right because the analysts are people and it is not a science. Then why don't individual investors think for themselves more instead of celebrating Blodget, Braverman, and Meeker? Do people want the stock market to be a casino? The Curly, Larry, and Moe show. threestooges.com In the sense that the market is being directed by a few people on Wall Street, it's kind of scammy. There aren't a lot of get rich and stay rich stories out there, why not? If AOL continues to go down, I can almost guarantee that it will be downgraded by many of the 23 analysts who currently have AOL rated a STRONG BUY! The anlaysts will suddenly be able to find problems with AOL and the whole investment thesis. >What about this thought? You, as co-founder of SI and therefor a >large shareholder in gnet, have everything to gain by puming this >board and slamming the real analysts. I like SI, but your statements >have a transparent motive I say what I believe to be the truth or I wouldn't post it. Your probably not happy with me because I'm discussing the risks in AOL and the overall market... something you won't find much help from in other places. If you do find something good, please post. Markets don't always go up and not everything is what it seems. Sometimes the most trusted sources are the ones that should be least trusted and vice versa. Discussion pro and con should be encouraged as long as the effort is honest. What I usually see on the SI boards is mostly bullish... sometimes balance can be a healthy thing... I'm not right about everything... but my participation on this board as well as yours helps people learn to think. One sided debate does not.

To: Pruguy who wrote (27399)	7/30/1999 1:26:00 AM
From: Jeff Dryer	Respond to of 41369

Here are some numbers with assumptions listed. See if you find this interesting. It would be helpful to people (not just me) if a framework was developed for valuing stocks. This is a 3 year model for AOL. Each column represents a full year (eg."1999" represents a full year of financial results ending June 1999). Growth rate assumption for Revenue: 50% per year Net Profit Margins: 15% P/E used for model: 80 (greater than Microsoft's P/E) Diluted Share Growth: 15% per year $ in millions 1999 2000 2001 2002 Revenue $4,800 $7,200 $10,800 $16,200 Net Income $396 $1,080 $1,620 $2,430 Net Profit Margin 8.3% 15% 15% 15% Fully diluted shares 1,295 1,489 1,713 1,970 Market Cap (Net Income X 80 P/E) $86,400 $129,600 $194,400 Stock Price $58.03 $75.66 $98.68 Discount the $98.68 stock price in year 2002 back at 15% return You'd be willing to pay $64.88 for AOL now if you believe the following results will occur, and are willing to hold AOL for 3 years, and you are satisfied with a 15% return on your money per year. I used the assumptions I did because it's what I think is reasonable. Maybe someone would like to use a P/E of 175 with the model and/or Net profit margins of 25% and/or more or less revenue growth. No share growth... maybe AOL announces a share buy back program. The point is, why not put a little effort into developing a model... then reliance on analysts is not necessary and you know better when to buy and when to sell. Analysts will almost never tell people to sell until it's too late. I'll run the model again for a more optimistic scenario in a few minutes.

To: Pruguy who wrote (27399)	7/30/1999 1:47:00 AM
From: Jeff Dryer	Read Replies (4) \| Respond to of 41369

If anyone wants to give me some assumptions for revenue growth rate, Net Profit Margin, P/E, and diluted share growth, I'll run the numbers and post it. Also, let me know what kind of return you want on your money, so I can calculate a buy price. Here is a 3 year model for AOL with more aggressive assumptions. Each column represents a full year (eg."1999" represents a full year of financial results ending June 1999). Growth rate assumption for Revenue: 75% per year Net Profit Margins: 15% P/E used for model: 125 (a premium for being the online leader) Diluted Share Growth: 10% per year $ in millions 1999 2000 2001 2002 Revenue $4,800 $8,400 $14,700 $25,725 Net Income $396 $1,260 $2,205 $3,859 Net Profit Margin 8.3% 15% 15% 15% Fully diluted shares 1,295 1,425 1,568 1,724 Market Cap (Net Income X 125 P/E) $157,500 $275,265 $482,375 Stock Price $110.53 $175.55 $279.80 Discount the $279.80 stock price in year 2002 back at a 20% return You'd be willing to pay $161.92 for AOL now if you believe the results presented in the model will occur, and are willing to hold AOL for 3 years, and you are satisfied with a 20% return on your money per year.