America Online – 16 March 1999
3
Projected Growth of Online Subscriptions 1996-2003, By
1996A 1997A 1998A 1999E 2000E 2001E 2002E 2003E
Dial-Up 15,122 21,623 28,010 33,000 37,000 40,000 42,000 42,000
% Change 43% 30% 18% 12% 8% 5% 0%
% of Total 100% 99% 97% 94% 88% 82% 74% 65%
Cable 19 50 500 1,300 3,000 6,000 10,000 15,000
% Change 163% 900% 160% 131% 100% 67% 50%
% of Total 0%0% 2%4%7% 12% 18% 23%
xDSL 0 20 100 400 1,200 1,800 3,000 5,000
% Change NA 400% 300% 200% 50% 67% 67%
% of Total 0%0% 0%1%3%4% 5%8%
Satellite/Wireless 10 140 200 400 750 1,200 1,800 3,000
% Change 1300% 43% 100% 88% 60% 50% 67%
% of Total 0%1% 1%1%2%2% 3%5%
Total 15,151 21,833 28,810 35,100 41,950 49,000 56,800 65,000
% Change 44% 32% 22% 20% 17% 16% 14%
% Narrowband 100% 99% 97% 94% 88% 82% 74% 65%
% Broadband 0% 1% 3% 6% 12% 18% 26% 35%
Full Year
Source: Jupiter Communications, IDC and Merrill Lynch Internet Research.
n Projected AOL Subscriber Growth
We next looked at our current projections for AOL's
domestic subscriber growth over the same period. As is
illustrated on p. 4, we currently estimate that AOL's
domestic subscriber base will grow from 13.2 million at
the end of 1998 to 30 million in 2003. These estimates
that suggest that AOL's share of the total domestic online
subscription market over the period will remain relatively
constant—from 45%-50%.
n Three Future AOL Broadband Scenarios…
The final step was to consider the impact of broadband
adoption on AOL's subscriber market share and compare
this projected impact to our existing projections. To do so,
we created three broadband scenarios—conservative, base,
and aggressive—each of which is illustrated on p. 4.
1. Conservative Case. Our conservative case assumes
that AOL will maintain its current market share in the
domestic dial-up access market (approximately 47%,
excluding Compuserve) but not get a single broadband
subscriber. We consider this scenario highly unlikely,
but we present it here for context. Based on our
projections for the growth of dial-up access subscribers,
the scenario suggests that AOL will only have 21
million subscribers in 2003—a 9 million shortfall
versus our current estimates. Looked at another way,
if AOL were to get no broadband subscribers, it would
have to increase its market-share in dial-up access
from 47% to 71% over the period in order to hit our
30 million 2003 estimate. It is because we believe
that this conservative scenario is highly unlikely that
we are still positive on AOL's stock.
2. Base Case. Our base case assumes that AOL will
maintain its current market share in the dial-up market
and achieve 33% market share in the cable, DSL, and
satellite/wireless markets. This seems plausible, given
the early (and, admittedly unsubstantiated) reports
about bring-your-own-access AOL usage by @Home
subscribers (anywhere from 30%-40%, depending on
who you talk to), as well as AOL's recent DSL deals
with major telephone companies. The scenario
suggests that AOL will have about 29 million
subscribers in 2003—roughly in line with our
estimate. We believe it is likely that AOL's growth
will either meet or exceed our base case.
3. Aggressive Case. Our aggressive case assumes AOL
will continue to increase its share of the dial-up
market (as it has over the last two years) from 47% to
60%, and capture 50% of all future broadband users
(about the same share it currently has in dial-up). If
AOL continues to sign deals with major telephone
companies, and, ultimately, with major cable
companies, we believe this market share is achievable.
Such a scenario suggests that AOL would have 37
million domestic subscribers in 2003—approximately
7 million more than our current estimate.
If AOL continues to execute well, we believe that its
domestic subscriber growth will come in somewhere
between our base and aggressive cases. It is for this reason
that we continue to argue that the adoption of broadband
will not have a negative impact on AOL's subscriber
growth. |
