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

To: Christopher Grace who wrote (6664)	1/5/1998 7:00:00 PM
From: Steve Robinett	Read Replies (2) \| Respond to of 13594

Chris, The problem with AOL's business model is bandwidth. They are the last survivor of the dialup, content-provider model of the past. Analog modems ain't getting any faster than 56k, yet the world is rapidly going in the direction of more bandwidth. Time-Warner & USW recently announced an internet/content service designed for cable modems, i.e., fast service. The internet itself has vastly more content than AOL can every provide. A business model that relies on dialup access is rapidly becoming obsolete. And AOL has nothing to sell to cable companies. They could only sell to a given cable company's subscribers who also want to be AOL members--they would already have internet access. You say they are "generating significant advertising and e-commerce revenue opportunities." AOL puts e-commerce and advertising in the "Other Revenue" catagory, as opposed to ISP revenue from subscriptions. Last quarter "Other Revenue" amounted to 16% of total revenue, hardly significant if they're supposed to be a money machine. AOL has 114 "venture partners," that is, stores selling online through AOL. My local mall has more stores. Most of the prime ad space on AOL is already spoken for. And as for the idea that "Member growth and revenue growth substantiate that the model works," if you divide the amount of service revenue by the number of subscribers for the most recent quarter and compare it to the previous quarter you'll discover that, although the number of subscribers rose, the number of PAYING customers actually went down! Technical expertese? Not hardly. You like instant messaging. Here's a site that offers a piece of free software for instant messaging on the web called PeopleLink. I use it all the time and it works quite well. peoplelink.com You like chat rooms. We're talking on one called SI. Yahoo has message boards, etc. Nothing special there. In fact, these things are technically trivial--not technically non-trivial--and hardly give AOL any kind of sustainable competitive advantage, certainly nothing like the sustainable competitive advantage of being the low-cost producer of Pentiums like Intel. As for AOL outlasting CompuServe, Prodigy, etc., I could say that at some time in the past one dinosaur found itself to be the last survivor of its species, then it fell over dead and that was that. I could say that, but I won't. Instead, I'll turn the question around. The question is not why AOL outlasted Compuserve, etc., but why Compuserve-Prodigy-etc failed. The answer is that they were dialup content providers and the internet exploded in popularity. AOL is a dialup content provider, ergo.... I don't say AOL can't make money. I do say there are substantial limits on AOL's future growth due to the narrow nature of the concept their business is built on. The stock price does not reflect these limitations. The stock is priced as though the parade of newbies will continue and grow forever. Don't buy AOL for your grandchildren, try Microsoft or Intel instead. MSFT & INTC will still be dominant plays in their fields in ten years. The above is all long-term speculation. As I've been saying here for a number of weeks, short-term I anticipate that AOL will go over $100/shr before the next earnings release. It's an overvalued piece of junk but an overvalue piece of junk Wall Street currently loves. If you're long AOL, you might consider taking some profits ahead of earnings. Best, -Steve

To: Christopher Grace who wrote (6664)	1/6/1998 1:03:00 AM
From: S. maltophilia	Read Replies (1) \| Respond to of 13594

What do you think of this? From Jan. 6 WSJ: interactive.wsj.com@1.cgi?id=SB884045612297163500.djm&template=pj1-combo-nf.tmpl PaineWebber Strategist Lists Potential Takeover Targets "...Now he is urging people to pick stocks that might also get taken over. The top six among those, he says, are America Online, ....."