To: Clint E. who wrote (22630 ) 8/6/1999 1:56:00 PM From: Iris Shih Respond to of 69211
Clint, Thanks for the read on aol. From BRS AOL WAKES UP MICROSOFT - Last week, Microsoft tried to hack into AOL's instant message network. This week, Microsoft threatened more aggressive promotion of its far-lagging access service. We view these moves as more a sign of Microsoft's acknowledgement that AOL now has significant power over its customer base, now threatening Microsoft's software stranglehold by infiltrating consumer PCs with multiple software programs. We expect Microsoft may be able to consolidate some of the ISPs, who have been struggling to compete with AOL. AOL has been able to maintain it leading share of over 50%, in the face of lower priced competition for the past few years. Like AOL's CompuServe, Microsoft proposes to pay a bounty to PC companies to compensate for discounted or free PCs. Of course, it is not really free, because the consumer must guarantee to pay for access for at least 2-3 years. Bundled access prices range from $9.95 to $21.95 per month. There is also consideration of promotions of free access in exchange for minimum commitments to buy from Microsoft-hosted stores. We don't expect price will be any more effective today at diminishing AOL customer loyalty than it has been for years. WHAT WILL HELP AOL'S STOCK? - We would not be surprised by pressure on the stock, until we see evidence that discounts from Microsoft or others do not diminish AOL's ability to meet its core and CompuServe subscriber growth estimates. Summer subscriber growth has not been as impressive as the dramatic growth in Web-based services, most notably with ICQ. We estimate total net subscriber additions for the AOL brand in the September quarter will be 900,000, including 800,000 for domestic and 100,000 for international AOL brand members. This compares with a total of 750,000 subscribers added in the June quarter. This almost flat sequential growth is seasonally normal, in our view. We expect a natural pick-up in demand by October when the next software version, 5.0, is scheduled for release. Previously, the associated disks and download programs boosted new subscriber growth. As such, we remain confident in our estimates. Looking past subscriber growth, we expect AOL to again experience accelerating commerce activity. Each deal appears to be growing with AmericanGreetings.com just agreeing to an expanded $100 million deal. Further, we believe AOL's non-subscriber reach is being under-appreciated. As we see more evidence of AOL extending its reach to new devices, we expect our understanding of the power and math to increase. This week, AOL invested in Radiant Systems, which provides point-of-sale devices for web access in gas stations, restaurants, etc. for quick Web fixes. While this may seem trivial, it highlights the need for easier access to eMail and other Web services, like stock quotes. AT WHAT PRICE WILL MORE INVESTORS CARE? - The stock is close to levels where we can justify the valuation on a P/E basis, with estimated C2000 EPS of well over $0.75 and estimated growth in excess of 50%. If the stock falls more than an additional $10, it would seem compelling to us on a current multiple-to-growth-rate basis. In previous periods of confusion and correction, the stock has rarely stayed down for long. I cleaned out those nuts this morning. Also did some daytrading in the first hour. Am watching the volume while they start to pull back. So far so good. Wait to get back in again. Iris