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

To: lawrence lerner who wrote (8931)	3/19/1998 3:59:00 PM
From: Robert Lawkins	Respond to of 13594

I found the most interesting part of the ML report saying, "However, AOL's valuation is certainly getting harder to justify. We estimate that it is currently trading at $1,140/subscriber using 12/98E subs vs. our target of $1,130 using a 14x multiple on $28/sub/month in revenues and 24% EBITDA margins in 5 years. It is hard to be more aggressive on our per sub target given that AOL generated $20.50/sub in revs in Q2 and the reported EBITDA margin was 10.8%. The shares look more reasonable on a P/E basis given AOL's estimated earnings growth rate over the next 2 year, but we continue to have questions regarding the composition of the earnings, e.g. gains on stock sales, etc." It seems that the analysts were grossly overestimating revenue production/subscriber and expected much larger margins to develop. $1,140/subscriber??? That is one heck of a valuation at $25/month (not counting ad and other revenue) with 11% margins. What about competition? As for the advertising/media model to develop, just one question of a rather non-scientific basis. The last time you sat down to watch TV, could you name the commercials you saw? Probably, right? The last time you logged on to your computer, do you remember one single ad that flashed in front of you? Seems to me this is more like billboard advertising and strangely enough, people pay more attention to their computer than they do to their driving (advertising is more effective on the billboards than on AOL/YHOO). And the comment about composition of the earnings.......gains on stock sales, etc. Very interesting. Finally, to say that its valuation is more reasonable on a P/E basis........estimated 5 year EPS growth 50%, trading at over 100x next year's estimates. I don't think so.