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

To: Investor-ex! who wrote (8830)	3/15/1998 6:10:00 PM
From: yard_man	Respond to of 13594

First point about valuation is well taken, but what signs to look for ... That's the problem. The internet will continue to grow for years. Here are the (the latest) signs I'm looking at: Fortune article Case appointed to the NYSE Board (I think this one is significant for investor psychology reasons.) We need one more super-positive sign! The landing of some huge multi-year advertising contract or better yet an agreement between AOL and one of the major Telcos. When people finally think that buying AOL they can't lose -- that's when the bottom will drop out! Take care Barry

To: Investor-ex! who wrote (8830)	3/15/1998 8:01:00 PM
From: Investor-ex!	Read Replies (1) \| Respond to of 13594

To all, Since competitive-pricing may turn out to be the catalyst that arrests AOL's subscriber growth, let's see if there is any insight to be had from developing a crude competitive-pricing model. Basically, the question becomes "is subscribing to AOL a better value than accessing the internet directly through an ISP?" if a = AOL i = internet x = combined AOL/internet performance factor y = relative internet performance factor r = relative pricing then is x(ya + i) - r > i ? It depends on the nature of x, y, and r. Let's make the following assumptions: i = 1.0 a = .5i in other words, all of AOL is independently half the value of the ENTIRE internet, which I think is being extremely generous. This figure is further broken down into .3i for content and .2i for ease of use. y = .9 relative to a regular isp, AOL is slow and does terrible in customer surveys. The system bottlenecks, loses e-mail or takes too long to deliver it. x = .9 inability to access e-mail, AOL, or the internet at all on demand during peak periods. r = .47i determined by taking AOL's new unlimited price and dividing it by the the best mainstream price available, MCI's 14.95 monthly unlimited, and subtracting 1 to reflect the premium AOL now demands. 21.95/14.95 - 1 = .47 Plug in all the bits and you get x(ya + i) - r > i ? .9(.9(.5i) + i) - .47i > i ? .9(.45i + i) - .47i > i ? .9(1.45i) - .47i > i ? 1.305i - .47i > i ? .835i > i ? ==> nope So, I guess AOL plus the internet is a now worse deal than just the internet! :o) Doesn't seem logical, does it? Aside from the relative performance of the two platforms, AOL's new pricing is what really skews the value equation. Note that before the price increase and MCI's 14.95 tie in offer, the 'r' factor would be zero. (19.95/19.95 - 1 = 0). In that case, the equation is completely in AOL's favor: 1.305i > i ? Mathematicallly, this is why I think AOL's price increase will eventually cause problems, especially if their competitors choose to price in the opposite direction, which I think they will because they can use it as a loss-leader for other core services. Right, wrong, useful, useless, complete waste of time, who cares?