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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: Reginald Middleton who wrote (4095)	1/30/1999 4:49:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 41369

Reginald, my definition of free cash flow is operating earnings plus depreciation plus amortization less sinking fund payments for replacing existing plant and equipment. Do you have a free cash flow definition that differs materially from the one above. If not, you ought to realize that this is an attempt to use a dividend capitalization model or a CAPM to analyze AOL. You argue that earnings are not important. I agree. But expectations of future free cash flows are important, particularly when the company becomes mature. Merely asserting that the dividend capitalization models and their variants are incorrect doesn't hack it. I have argued that traditional valuation models are incapable of properly evaluating companies in hyper-growth. But I am making an assumption that the best way to attach some sort of value is to imagine that the company has wildly succeeded in all aspects of its business plan, and is no longer a growth company but a cash cow. Could we put a value on the company at that point? I believe we can, and that is the thrust of the arguments I have made. And the questions were two-pronged: first, what kinds of cash flows would the company be generating at that point? Second, is there logical consonance between the answer above and current conditions? CTC