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

To: shag007 who wrote (9871)	5/6/1998 10:45:00 PM
From: Raymond	Read Replies (3) \| Respond to of 13594

I used to be a heavy player in betting on earnings surprise and my experience is that after hour trading points to the right direction in most cases. I guess the reason is simple: if you don't feel something strongly, you won't rush out to do after hour transactions. No doubt that there are exceptions. And exceptions tend to draw more attention than they deserve, especially when they are in the undesired direction. AOL's results have been out for hours and nobody in this forum cares to analyze the numbers; rather, there are many talks about the accurary of after hour trading and the obscene valuation. Let's get real. 1. AOL, for the first time, beat the estmates without any number manipulation. There are charges, of course. However, if you don't like charges, do you like one-time gain? AOL didn't include the $200 mil cash we got from WCOM in their income. 2. AOL generates postive cash flow of $200+ mil from operation. This signifies an end to cash burning. This is much larger than the income. Part of the reason is due to the non-cash charge. This also explains why a charge should not directly offset income without discretion. 3. The excecutives are very positive on their future growth. Many people criticized AOL's mngt's accounting practice, some went farther to resent them. The fact that AOL's mngt has guided the company to emerge as a leader in a competitive business, and the fact the company has gained Wall street aceptance simply show that AOL's mngt is excellent. Betting against excellent mngt is usually not a good idea. Well, no company should trade up to infinity no matter how good it is. Talk about valuation. The P/E ratio of 600 or whatever it is is highly distorted. AOL is currently trading at <10x annualized revenue, and about 20x annualized cash flow. This is pricey by any standard, but we are talking about a leading company in a hot industry with tremedous potential, and this is a company that has proved itself in a competitive business, that is profitable on its basic service business, and that is growing its high margin business rapidly. Being a long term investor on AOL, I don't care about its price tomorrow. If I had to guess, I'd say the price has a better than 50% chance to be up tomorrow, and it will go up a lot a few years later. Just my two cents, Raymond