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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (18443)	4/26/2002 9:54:16 AM
From: MeDroogies	Read Replies (2) \| Respond to of 74559

Jay, as for the ad market relating the rest of the economy, what you have to consider are two things: 1. 5% increases in the ad market were standard in the 80's as the market posted extraordinary gains. 10-20% were standard when the bubble was bubbling and advertising outlets (cable, internet) were expanding or maturing. Today, cable is quite mature while the internet has gone through hyper-maturity. In fact, internet increases still look to be about 10-20% (though spending is only 1% of advertising's total), while internet impressions have increased about 80-100% (creating a tough environment for all but the most seasoned professionals). 2. Ad spending, based on studies I'd worked on years ago, doesn't always relate closely growth. It's true that you'll see increases in ad spending during growth years, but it isn't ever 1-1 because ad spending is what gets cut first as companies tighten belts. Typically, ad spending leads the recession and leads the recovery. This was the first "recession" that it didn't occur in, but mainly for reasons unrelated to the economy. I will explain via the TW example. TW does alot of intracompany transfers to boost their revenues. This actually SAVES them money because they can advertise on their own products (CNN, etc) and not spend on competitive outlets. In addition, they get supplementary advertising because if you only sell 80-90% of your inventory, you can give the rest to internal promotion (not too uncommon) and write it off. As a result, alot of large conglomerates were doing this (GE being the lone exception, they require payments to be made as if you are dealing with an outside firm...something I laud them for), which made the ad market seem larger than it was for about 6 additional months. TW got away with it for an additional 6 months beyond that. However, it is unfair to lump TW in with Enron. As shady as their accounting may seem, the $54bb loss really is just an accounting shift. The money was being amortized (loss of goodwill) when accounting rules changed. Many companies had to take their goodwill losses off all at once. TW was just the largest. In reality, this was a benefit to them (it wasn't real money, anyway, but puffed up bubble stock valuations). Right now, TW is easily worth 20-25 on its own. AOL, which actually earns money, unlike the TW portion, is worth something too. According to the "analysts" it's 3-8. I'd say closer to about 15. AOL is a great buy at these prices ASSUMING they fix their problems. I'm quite scared they will, and that would create a juggernaut of unbelievable proportions. On the other hand, I agree with you about the "youth" factor. AOL has alot of very (too) young VPs. They are making the mistakes that TV made 20 years ago. Even so, it is tough to turn around a battleship. Lucky for AOL, it is also tough to sink one. My estimate is AOL will hit 40 in 8-12 months. I'm seeing signs that they are fixing their problems. 3 months should make that much clearer.