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

To: Sam who wrote (10933)	8/4/1998 7:00:00 PM
From: Yikes	Read Replies (1) \| Respond to of 13594

The Q4 report is misleading. Subscriber growth has slowed down greatly in comparison to previous quarters. I compiled this table using data from past earnings reports: FY Marketing Sub. Growth Acq. Cost ------- --------- ----------- ----------- 97 Q1 $150M 414,000 $362 97 Q2 $151M 1,200,000 $125 97 Q3 $93M 236,000 $393 97 Q4 $100M 600,000 $166 98 Q1 $98M 821,000 $119 98 Q2 $97M 1,267,000 $76 98 Q3 $84M 1,148,000 $73 98 Q4 $95M 665,000 $143 'Acq. Cost' is the acquisition cost per new subscriber. It should be on a down trend as AOL builds brand-name recognition. FY97 Q3 is an abberation due to the flat-rate-pricing fiasco, which also spilled over to FY97 Q4. This past quarter, however, acquisition cost doubled from the previous quarter for no apparent reason. AOL's marketing strategy is to flood the public: AOL commercials on television, AOL 50-Hours FREE CD's in the mail, and in bookstores like Barnes & Nobel. Most computer owners receive multiple AOL CD's. If the subscription growth is slowing despite these marketing efforts, then it may signal the beginning of growth saturation in the ISP business. If so, AOL stock price will be negatively affected. I recently discussed subscriber valuation on the Motley Fools board. The estimate was between $1,300 and $2,000 per subscriber. The upper limit is borrowed from the cable television industry. The low-end reflects the 25% discount that some analysts use to evaluate ISP's. The recent high of $140 per share matches the high-end evaluation of those who hope AOL would reach 15 million subscribers soon. $2,000 * 15M sub / 222M shares = $135. But using the known subscriber number for FY98 Q4, the high-end drops down to $112 per share. The low-end, though, is $1,300 * 12.5M sub / 222M = $73 pre share. So, the stock closed today at $111. Where will it go next? Yikes