Lets talk about AOL now Pitmans gone.
>>BOOM AND BUST MAN
During the past two years, Mr. Market has thrown every New Economy booster in the dock. Is anybody crying for us? Course not. I can hear the snorts. I can feel the gales of laughter. At technology conferences--those that are left, anyway--I crouch in the shadows and compare notes with pals such as George Gilder. We weep about our Buy and Fold portfolios. Nobody weeps for us. Nobody even offers to buy us a drink.
But may I ask a question? Which of you bears out there gloating today--the ones torching my e-mail box--timed the tech market just right, both ways? Please stand up and take a bow, you wise ones who pegged the precise month of the beginning of the long tech boom (January 1995) and the tech bust (March 2000). What? I don't seeeeeeee anybody! I'm still looking for the one smart chap who got it right both ways. Maybe this genius can tell us when tech stocks will rally for good.
Sweet Revenge
I've found him! At least--I think I have. The man who got it both ways. It's none other than Steve Case, the chairman of AOL Time Warner. But I want you to believe this yourself, so let's jump aboard the Digital Rules time machine, go back 30 months and train our forensic camera on Case. It's January 2000, and we see that the apple-cheeked AOL chief is hopping mad. Only weeks before, Time magazine had anointed little grinning Jeff Bezos of Amazon.com as its 1999 "Person of the Year"--the millennial closer, no less. This irritates Case no end. He has been around a lot longer than Bezos (and is richer by far). Though jealous, Case is also smart. He knows financial history and can deduce that a Bezos Time cover must certainly mean that Net stocks are top-ticked.
Seething, Case works out a plan. It combines brilliant financial strategy with sweet revenge. Case decides to swap his top-ticked AOL stock for Time's parent company, Time Warner. Talk about audacious.
Like all pioneers, Case goes against the crowd. Funny as it seems today, from 1996 to 2000 (oh, glory bubble years!) there circulated a belief in Case's coterie that pure Net plays, such as AOL, should resist using their stock, however puffed up, to buy brick-and-mortar companies. Why (the thinking went), if any Net darling so much as hinted that it might trade its precious paper for a profitable enterprise born before 1995, such a Netster would certainly taint its ... purity. Should Yahoo ($65 billion market cap, January 2000) swap some of its funny money to buy Disney ($60 billion market cap, January 2000)? No way. Yahoo slum for Disney's earthly brick-and-mortar valuation?
But in January 2000 Steve Case did just that. He went against the crowd. He proposed trading half of his AOL stock ($210 billion market cap, December 1999) for Time Warner's ($90 billion market cap, December 1999)--at the market's very top! Smart boy, Case. He only pretended to drink the Net Kool-Aid. Or maybe he slurped it until something snapped in his brain when he saw that punk Bezos on Time's cover. Or maybe all along Case was sly, more like his older brother Dan, an investment banker. Steve Case, too, has the heart of an i-banker--if there is such a thing. Whichever way you analyze it, young Case timed it just right.
Bottom Fishing
But now, in this rotten bust year, AOL Time Warner is off 70% from its post-merger peak 18 months ago. Its market cap has plunged from $240 billion to $70 billion. Some wags say that Time Warner, with profitable magazines such as People and Sports Illustrated and riding a hot streak of hit movies such as Harry Potter and Lord of the Rings, may account for the entire $70 billion market cap. In other words, old AOL may be worth zip. Quite a fall.
Think about this. When AOL is valued somewhere around zero, when the Nasdaq index looks like the answer to a Christopher Columbus quiz and when a majority of formerly bullish Wall Street analysts discount any hope of an IT rebound in 2002, I am tempted to say, the bottom is here. Buy! But don't believe me. My scorecard for techs during the last two years is on par with any other New Economy booster: It reeks.
But don't take the word of those perpetually grim bears, either. I've looked into this matter and learned that the majority of sempiternal bears hide some underlying problem, often chronic constipation, halitosis or cysts that block the bile duct. Bears are nature's sourpusses. Sitting on the toilet kvetching about P/Es, they missed the tech boom in early 1995. They'll miss the next one, too.
Instead, watch the man who got it right both ways. If you see evidence that Steve Case is trying to break up AOL Time Warner and pull his baby, AOL, out of the tech inferno--such rumors are flying--assume Case thinks the market undervalues the AOL portion. Case being smart about these things, you'll know that tech has hit bottom.
forbes.com |
