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Technology Stocks : America On-Line: will it survive ...? -- Ignore unavailable to you. Want to Upgrade?

To: IKM who wrote (6402)	12/15/1997 3:00:00 PM
From: Todd Daniels	Read Replies (2) \| Respond to of 13594

These guys are a hoot. When AOL was down 4+ earlier, this reit was rushed across the wire. AXB (one of AOL's underwriters) last re-ited only seven trading days ago (12/04). 12/15/97 (Bloomberg) America Online Reiterated 'Strong Buy' at BT Alex. Brown America Online Inc. (AOL US) was reiterated ''strong buy'' by analyst Shaun G. Andrikopoulos at BT Alex. Brown Incorporated. The 12-month target price is $115.00 per share. Oh, BTW, on 12/04 AXB cut Q2 estimate from $0.18 to $0.16; but so as not to upset FY estimate raised Q4 by $0.02 (by which time, no doubt, the rolling reduction-increase gambit will have been played again). *** But get this folks........... Previously AXB had used PE to derive target price: 09/23/97 In the 12-month horizon we feel that a $84 price target is attainable based on a 60x multiple of our $1.40 CY 1998 EPS estimate. [Note use of calendar rather than FY EPS estimate, which was $0.90; and that 60x is 20% higher than the est growth rate] When AOL reached the target in barely five weeks, AXB didn't downgrade on price. It just raised the target. But it didn't raise EPS est. How'd they do dat? No problemo. Just create a new method of valuation. 11/07/97 Valuation: We believe that AOL is most accurately valued if we consider its hybrid revenue streams. We feel that based on comparable cable company valuations that are within the $2,000-3,000 range, it would be conservative to value AOL's subscribers at $750-1,000 per subscriber. This leads us to $9-12 billion target market capitalization by mid-CY 1998 assuming that AOL had 12.5 million members at that point. Incrementally, we feel that it is appropriate to value the Company's other revenue line on a comparable basis to the Internet Media Navigators and Aggregators (Yahoo!, Excite, Infoseek,Lycos) which trade at an average 10x CY 1998 revenues. This leads us to a $5.0 billion target valuation assuming $500 million in other revenues in CY 1998. In aggregate this valuation methodology leads us to a 12-month market capitalization of $15 bb and a stock target price of $115. Note the assumption that AOL proper (ex-Compuserve) will grow subs 25% by the end of 1998. Most importantly, AXB's $1000 per sub ex-'Other Revenue' half of its 'hybrid' valuation essentially values AOL's access business. But AOL operating income ex-'Other Revenue' would have been negative $61 million instead of plus $26m. And, as I've posted previously, even slapping a 'cable-based' $1,000/sub valuation on combined access and other revenue doesn't wash. Cable per-sub valuations are shorthand for multiple of CASH FLOW. Even giving all benefit to calculation, AOL's Q1 EBITDA was only $72 million, or $7.20 per sub and $0.61 per share. A 'cable' multiple of 10 x EBITDA would value AOL at $6.10 per share, which translates to about $72 per sub. The $72m is EBITDA adjusted by: -decrease for $1.3m credit from reserve for Q297 restructuring charge -increase for $20m expense compensatory stock options re. sale of ANS to WorldCom. However, it is worth noting that this largely is just acceleration of options-related expense that would have been incurred over longer period if ANS remained part of AOL.

To: IKM who wrote (6402)	12/15/1997 10:00:00 PM
From: Art Stone	Read Replies (1) \| Respond to of 13594

Anybody notice that BA Roberston Stephens had the audacity to downgrade MSFT? I wonder who's next? You know, the thought just occurred to me - since the Justice Department is attempting to force Microsoft to unbundle MSIE from Win95, could this affect AOL v4.0, which is based on an integrated AOL/MSIE client - especially given that AOL is also preinstalled. Without MSIE on the new computer, you won't be able to point and click your way into an AOL v4.0. signup.