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

To: zax who wrote (11674)	10/31/1998 9:06:00 PM
From: Mannie	Read Replies (2) \| Respond to of 13594

Zax- I have 2 accounts with Datek, why is it I never received the letter in question? Personally I believe that AOL will be a massive power in business and communications for the forseeable future. Revenues and profits are exploding. They have something like 14 million subscribers, with only a little over a million outside of the US. This is a drop in the bucket compared with the number they will have next year, five & ten years down the road. The will probably reinvent themselves several times over during that period. They are the MSFT of this sector of the economy. Gorilla's are very difficult to displace.

To: zax who wrote (11674)	11/1/1998 12:19:00 PM
From: Steve Robinett	Read Replies (1) \| Respond to of 13594

Zax, If you think AOL's capitalization is in line with its fundamentals, then I'd suggest you start sharing whatever drugs you are doing with me. What is a reasonable valuation for AOL? Certainly growth, both of the Internet and AOL, has to be considered. I've seen various estimates of Internet growth going forward but 30% per year is the number I currently see most frequently, a number that more or less matches AOL's growth. This quarter, AOL says it added 951,000 new subscribers to a 12.5 million subscriber base, an annualized rate of about 30% (Yes, they probably lost some too, raising the issues of net new subscribers, but that's a quibble). In spite of AOL's glowing percentage growth numbers, e-commerce and advertising are about 16% of revenues, the same level they have maintained for a while. In other words, AOL is growing linearly, not leveraging their subscriber base, probably the main reason they had to raise subscription rates a while back. So I'll assume for this post that AOL grows at the same rate as the Internet and that the growth is proportional--the net grows 30% a year, AOL grows 30% a year. Since companies are valued in the marketplace by investors' present perception of the company's future value, I would suggest that it is not unreasonable for investors to assume AOL will continue to grow at that 30% rate for the next 5 years. Though I would prefer to use a discounted cashflow valuation of AOL, a more reliable measure, there are too many murky tax and software capitalization issues so I'll stick with earnings. At $.26 this quarter, AOL's current earnings runrate is $1.04. Assuming linear growth of 30% per year in AOL's subscriber base, the 5 year compounded earnings number comes out to about $3.85 cents per share. Five years from now, assume AOL's P/E matches its growth rate, something that tends to happen with mature and stable companies. $3.85 times 30 equals--surprise, surprise--equals about $115/ share. It is therefore possible to say that investors' present perception of AOL's future value is not at all unreasonable. Whether AOL will realize that future value is of course uncertain. Best, --Steve

To: zax who wrote (11674)	11/1/1998 2:33:00 PM
From: Jorge	Read Replies (1) \| Respond to of 13594

Zax...Some of my best investments over the years have been in stocks that have high P/E's....DELL, for instance (one of my other stocks) has been purported by it's detractors to have had too high a P/E for several years...Well, my friend, if that was your position a few years ago and you chose not to invest in DELL you would have had missed out on amassing a great fortune...This argument has been around for all my stocks for quite some time.........Let me ask you this:...What does P/E have to do with making a LITERAL fortune in a company?....I will be quitting my regular job in a short period of time, with growth in my high-P/E'd stocks reaching well past the million dollar mark, to be involved in philanthropical endeavors.....High P/E stocks have made this possible.........If high P/E'd stocks "bother" you may I suggest some steel industry stocks that may be more to your suiting. Regards, George