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

To: Steve Robinett who wrote (7859)	2/13/1998 8:12:00 PM
From: PAL	Read Replies (1) \| Respond to of 13594

Steve: AOL stock keeps going through the roof as a result of those 22 out of 24 analysts keep giving a buy or strong buy ratings while only 2 give a hold. Why is this happening when the fundamentals of the company are really poor? Brokerage houses make lots and lots of money in underwriting IPO or secondary offerings. Guess when did the latest stock start? That was when AOL announced to increase the number of authorized shares from 300 M to 600 M. The stock rose sharply again when it was announced 2 for 1 split instead of 3 for 1 or 5 for 2. That latest announcement will leave AOL with about 400 M of authorized shared unissued. There is no doubt that AOL constantly needs money, just look at the balance sheet. Negative working capital. With 400 M shares available for issuance, brokerage houses are salivating to get the business. Do they want to be on the bad side of AOL? The higher the stock price, the more commissions they can reap. Stockholders are happy, brokerage houses are happy, Steve Case is happy, so why rock the boat. But will it continue? Will the market always take what is fed by analysts?

To: Steve Robinett who wrote (7859)	2/13/1998 8:49:00 PM
From: PAL	Read Replies (3) \| Respond to of 13594

Signs of trouble for AOL start showing up: 1. The annual meeting with analysts. biz.yahoo.com AOL refused comments to a question as why the stock ran up. If the business is really good, AOL will justify it by giving a rosy picture for the future, so bright that you need shades. 2. Article in the Wall Street Journal 2/13/98 front page: "The Issue of 'Spinning' Ended Merrill's Interest in Hambrecht & Quist". Why is this so important? H&Q Chairman Daniel H. Case III who is the brother of Steve Case is a powerful investment banking figure. H&Q who is based in San Francisco does a lot of IPO of technology companies (although of late the sizes of those IPO's are small). As the brother of AOL chief, he can influence as who will be included in the IPO's or secondary offerings. But now, H&Q is in hot water with regulatory agencies about "spinning" that Merrill Lynch put on hold its plan of buying H&Q. The latter company is not as influential as before. 3. Latest issue of Individual Investor (bull and bear for AOL), Smart Money Interactive,and WSJ 2/13/98 p B7 where AOL warned analyst that heavy use of the service might squeeze earnings in its third quarter. And typical AOL feel good projection it says that it remains comfortable with WS full year expectation of 91c ending June 30 (hey I thought Robbie Stephen projection was much higher than that). 4. Steve Case acknowledgement that $ 2 increrase per month will not channel down to the bottom line. Hey if there is no price increase, previous analysts forecast is almost $ 2.00/share overstated. The main holder of AOL stock are mutual funds who have the obligation to preserve investors' capital and keep the gains. Mutual funds have their own analysts and they are not in the business of underwriting. Compuserve integration which is a monumental task, the question is then how can AOL turn money losing company to a profitable entity and add to the bottom line? The answer is very very very difficult. Mutual funds analysts will see the fundamentals of AOL with no vested interest other than making nice return on investment. While they do consider the opinion of brokerage houses, they will act what is the best for investors. Will not be surprised if mutual funds take the profit and run. The use the proceeds investing in blue chip companies.