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To: Jorge who wrote (12)	2/1/1999 12:09:00 AM
From: musea	Read Replies (1) \| Respond to of 419

George, You wrote: Do we know enough about where AOL is going with their acquisitions/partnerships and subsequent development, furthering current endeavors and brand new ones yet to be entered into, to be able to intelligently discuss whether AOL is overvalued or undervalued?...As I ask/suggest in the below re-post it COULD BE that AOL is Undervalued. You are asking the right questions. If you look at my earlier post about how to AOL could support its valuation sooner than Chuzzlewit's original free cash flow valuation computation, one of the questions that comes to mind is HOW can AOL achieve those results? That's why I am interested in your discussion. AOL is very rich because of its current valuation, and acquisitions are not out of the question (in fact, many are speculating on which companies will be acquired, not whether an acquisition will take place - see the Motley Fool or Cramer, exact reference not available right now). -musea

To: Jorge who wrote (12)	2/1/1999 1:03:00 AM
From: Chuzzlewit	Read Replies (1) \| Respond to of 419

George, I think you are homing in on the right questions, but I think that potential acquisitions are not the answer. For example, AOL's pending merger with NSCP will add to market capitalization and dilute free cash flow, so the problem becomes worse, not better. The question I have posed is basically this: how big must AOL grow its cash flow at a minimum to justify its current market capitalization according to traditional methods of valuation. I believe that the answer is around 2000%. But that is an underestimate because it assumes that the growth will occur instantaneously and provide no risk premium to investors. Regardless of exactly how big the number is, the implication is that investors are expecting extraordinary growth from this company. And that raises the further question as to the reasonableness of those expectations. It seems to me that we need to ask whether the current business plan has the potential of increasing cash flow by that amount without invoking elements such as mergers. Clearly, with a current subscriber base of around 16 million do we need to invoke a subscriber base of 320 million to achieve these result? Could a more modest base of say 50 million achieve that result, and if so, how? I don't know the answers to these questions, but it seems to me that if we accept the premise that AOL would need to increase its free cash flow almost 20-fold to justify its current capitalization we ought to be able to see a trajectory to accomplish that goal. As you know, for several years I have argued this issue on the Dell thread, taking the position that Dell share prices could be justified on these bases (but I am no longer sure that I could do so given Dell's current price), and produced evidence in support of that position. But when I try to repeat that exercise with AOL I come up empty. And I chose AOL because I believe that financially it is the most solid (and conservatively priced!) of the portals. TTFN, CTC